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ITS DISCOVERY AND DEVELOPMENT
STEPHEN HEMSLEY LONGRIGG
o tempera recordationis dignissima.
FULCHER OF CHARTRES
Issued under the auspices of the Royal Institute of International Affairs
OXFORD UNIVERSITY PRESS
LONDON NEW YORK TORONTO
N~ 3 4
Oxford University Press, Amen House, London E.C.4
GLASGOW NEW YORK TORONTO MELBOURNE WELLINGTON BOMBAY CALCUTTA MADRAS KARACHI KUALA LUMPUR CAPE TOWN IBADAN NAIROBI ACCRA
New material in this edition
© Royal Institute of International Affairs I96I
First edition Second impression Second edition
REPRINTED BY LITHOGRAPHY IN GREAT BRITAIN BY JARROLD AND SONS LTD, NORWICH
PREFACE TO THE SECOND EDITION
ANUMBER of ~inor al~erations and c~rrections were made in the second ImpreSSlOn (1955) of this book, and the opportunity of this Second Edition is taken to make a few more, where friends and critics have indicated the need for these. The main function of the present edition is, however, to continue the narrative of the 'discovery and development' of Middle Eastern oil from early 1953 (at which point the previous edition stopped) to mid-1960. This has involved the substitution of one chapter and the addition of five more. It is hoped that this considerable addition of recent information will increase the value of the book for those for whom it is intended: that is, all to whom a fairly full, but non-technical, account of a rapid and remarkable industrial development, in a highly sensitive and important region of the world, is of interest. Judging by the kind reception given to the First Edition, and the extent to which it has been used and quoted by subsequent writers, it can hope to be of some further value in its limited and unpretentious function.
Some changes have been made in the Appendixes; the maps are all new, and in the preparation of these the kind assistance of the Petroleum Times is gratefully acknowledged. The folding map has very kindly been supplied by the Shell International Petroleum Company Ltd.
S. H. L.
PREFACE TO THE FIRST EDITION
THE writer who hopes to interest and to instruct bY. the story of petroleum development in the Middle East starts, whatever his personal shortcomings, with four advantages implicit in his subject. The first is the importance of petroleum itself; no single substance, as all admit, is more vital to every material activity of our civilization, peaceful or warlike, or more certain of a future of yet greater utility and value. The second is the speed, scale, and the industrial romance of oil discovery and exploitation in the Middle East in recent years which have led it to become, in two decades, a vital factor in world economics. The third is the international significance of the existence of this form of
wealth in an area which both its history and its geography proclaim to be of outstanding political sensitiveness and strategic value. The fourth is the actual and probable effect, on the indigent and economically backward and politically unstable societies of the oil-possessing countries, of the sudden acquisition of great wealth, produced for them by an outside agency-the foreign oil companies-and the relations between the latter and the countries 'where they operate.
On the substance itself, petroleum-its chemistry and physics, its processes and products-, the present historian, who is no technologist, has nothing new to contribute; and he will mention only in passing the connected strategic and international considerations, since these are familiar enough and have been described by many writers. The viewpoint of the writer is, therefore, rather that of an interested student of Middle Eastern society, industry, and affairs who has been also, as it happens, an oil-company executive in these territories for many years, as well as that of an historian and orientalist. He hopes that his historical and factual method of approach and his intention of objectivity may give to these pages at least the value of a reference book which may be found to assemble and synchronize conveniently the practical oil history of a group of countries and of companies, and to observe some of the early effects of their new oil wealth on its fortunate possessors.
Of the three elements in the Middle Eastern scene here described -the local governments, the peoples, and the oil companies-the author believes that he runs no risk of failing in sympathy for the two first-mentioned, among whom he has very many friends. The peoples and leaders of Western Asia, who are not without weaknesses in their public life which at times dismay their wellwishers, have great and attractive gifts; and, not least because they are now passing through a period of restless and difficult transition, deserve every sympathy and every reasonable form of assistance. Moreover, the oil buried in their soil is their own, until they have, by due process of law and for their own advantage, granted rights over it to others. May they use this wealth wisely for the common good and the welfare of their countries!
Of the third element, the foreign concessionaire companies to whom such rights have been granted by the governments concerned, some readers who are convinced in advance of the greed, the intrigues, and the oppressions of Big Business may feel that
too favourable a view is taken in these pages. But a favourable view seems to the writer to be imposed by the patent facts of the case: whatever evils of callous exploitation may have existed in other regions of the world or in other periods of time, the great oil companies operating in the Middle East in this century do not seem to have exemplified them. Impartial scrutiny seems to show, on the contrary, thatwith whatever motives of self-interest - or of genuine benevolence, and with every advantage of great commercial prosperity and abundant resources, the British and American companies have been directed and served in their Middle Eastern dealings by enlightened men of goodwill: that their record, while falling short of perfection, will bear critical inspection: that they have performed great services and few disservices to the countries where they have worked: and that nowhere has this been truer than in Persia.
It seems unlikely that the oil-owning countries will for a long time be in a position to substitute any other oil-operating agency for the foreign companies hitherto employed by them to develop their natural resources; and if wisdom in the future dictates that the relationship between national governments and these companies-no easy one in the present-day Middle East-should be modified or reorientated, it must be hoped that it will change on lines which will permit each party still to perform its part in the common endeavour and to gain its proper reward. The task of the government is to assure, and the privilege of the company is to enjoy, conditions in which the latter may enjoy full security of its property and rights within the terms of properly concluded agreements: may control its own operations, within the law and current practice: and may make a reasonable profit. The duty of the companies must be to develop the mineral wealth of the nation, according to the terms of its charter to do so, with economy and efficiency: to contribute adequately on an agreed basis to the local treasury from the proceeds of the enterprise: to satisfy the country's needs in hydrocarbon products on reasonable terms, whether by Ideal refining or, if that is uneconomic, by import: to diffuse the economic and social benefits of good employment in good conditions, and otherwise to assist in strengthening the local economy: and to increase the skill and capacity of local staff and workers so that they may reach the highest positions which they are capable of filling. The more each of the two parties can conduct -its part in the joint
enterprise-for as such it ought to be conceived-with good sense and honesty and mutual understanding, the better for both. Failure by either must grievously damage the fortunes of both, and must destroy or prejudice the hopes of development and social advance on which in all the Middle Eastern producing countries depend, in a material sense, the prop~r realization and utilization of their oil wealth.
. The substance of this book is derived from various sources. These are: the petroleum press, especially but not exclusively the Oil and Gas Journal, Petroleum Times, Petroleum Press Service and World Petroleum: the author's own records, observations and memories: the published and in some cases, by kind permission, the unpublished reports of companies: published books and monographs on the resources and economies of the various territories and on the oil industry in general: and the information most helpfully given in writing and orally by a number of the writer's friends in responsible positions in the industry. The debt to these, who are too numerous to mention and from whom it would be invidious to select, is very great, For all errors of misstatement or omission and for all the views expressed the responsibility belongs solely to the writer; he has in no case sought or wished to be an authorized spokesman for any company or interest.
S. H. L.
PREFACE TO THE SECOND EDITION
NOTE ON ABBREVIATIONS AND QUANTITIES
I. THE BEGINNING
1. Oil Formation (p. I). 2. Middle East Oil (p. 6). 3. Surface Signs and Earliest Uses (p. 10). 4. Birth of the Industry (p. II). 5. Middle East Oil in the Nineteenth Century (p. 12).
II. BEFORE THE FIRST WORLD WAR
I. The New Century (p. 16). 2. Persia and the A.:P.O.C. (p. 17). 3. Egypt (p. 22). 4. The Turkish Empire and Arabia (p. 25). 5. Turkish Petroleum Company (p. 27).
III. THE FIRST WORLD WAR AND AFTER
I. The War Years (p. 33). 2. The War in Persia (p. 34). 3. Persia after the War (p. 36). 4. Egypt, 1914-23 (p. 39). 5. Levant, Turkey, Arabia, and 'Iraq, 1914-23 (p. 41).
IV. OIL UNDER RIZA SHAH
1. Between the Wars (p. 48). 2. The Nineteen-twenties in Persia (P.52). 3. 1933: a New Deal (p. 57). 4. Fields and Abadan, 1933-9 (p. 60).
V. HOPE A~D FULFILMENT IN 'IRAQ
1. Naftkhana (p. 66). 2. The Red Line (p. 67). 3. Baba Gurgur (p. 70). 4. Revised Concession and B.O.D. (p. 73). 5. Mediterranean Pipeline (p. 76). 6. West of Tigris (p, 79). 7. The Basra Province (p. 82).
VI. THE LEVANT BETWEEN THE WARS
I. Turkey (p. 84). 2. The Levant States: Pipelines and Terminals (p.86). 3. The Levant States: the Search for Oil (p. 90). 4. Egypt:
Renewal of Hope (p. 94).
VII. THE BEGINNING IN ARABIA
1. First Steps (p. 98). 2. Bapco (p. 101). 3. Qatar (p. 105). 4. Casoc (P. 106). 5. Kuwait(p. IIO). 6. West, South, and SouthEast (p. II 3).
VIII. SECOND WORLD WAR: 'IRAQ AND PERSIA
1. 'Iraq Catastrophe (p. 117). 2 .. Recovery in 'Iraq (p. 119). 3. Recession in Persia (p. 122). 4. Persia: the War Achievement (p. u6). 5. Russian Concession (p, 129).
IX. SECOND WORLD WAR: ARABIA AND THE LEVANT
1. The Fortunate: Sa'udi Arabia (p, 132). 2. The Fortunate:
Bahrain (p. 135). 3. The Unfortunate: Qatar and Kuwait (p. 136). 4. Turkey and the Levant (p. 138). 5. Egypt in the War (p. 142).
X. THE TRAGEDY OF PERSIA
1. Russian Concession (p. 145). 2. Development in Persia: The Last Phase (p. 147). 3. The Anglo-Iranian as Employer (p. 152).
4. Agreement, Disagreement, and Nationalization (p. 159).
5. Aftermath, 1951-3 (p, 167).
XI. MID-CENTURY IN 'IRAQ
1. End of the Red Line (p, 174). 2. Kirkuk and the LP.C. (p. 175). 3. The New Pipelines (p, 179). 4. 'Ain Zala and the M.P.C. (p. d~3). 5. Zubair and the B.P.C. (p. 185). 6. Naftkhana and the K.O.C. (p, 188). 7. Companies and Government (p, 189). 8. Uncertain Prospect (p. 194).
XH. ARABIA, 1946-53: THE ALL-AMERICAN COMPANIES 198
I. The Peninsula, 1946-53 (p. 198). 2. Progress of Aramco (p.201). 3. Tapline (p. 206). 4. Aramco, Government, and Public (P.209). 5. Neutral Zone (p. 214). 6. Bapco and Bahrain (p, 217).
XIII. ARABIA, 1946-53: THE INTERNATIONAL COMPANIES 220
I. Kuwait (p. 220). 2. Qatar (p, 227). 3. Southern Arabia (p, 23 I).
XIV. THE LEVANT COUNTRIES SINCE 1945
I. Turkey (p. 236). 2. Syria-Lebanon (p. 238). 3. Palestine and Jordan (p. 246). 4. Israel (p, 250). 5. Egypt (p, 253).
XV. 'IRAQ, 1953-60
1. Governmental and General (p. 262). 2. Northern 'Iraq (p. 269). 3· Southern 'Iraq (p. 273).
XVI. PERSIA, 1953-60
1. The Consortium (p. 276). 2. The Operating Companies in Action (p. 279). 3. Refining and Services (p. 282). 4. N.LO.C. (p. 285). 5. More Foreign Enterprises, 1957-60 (p. 288).
XVII. SA'UDI ARABIA, 1953-60
1. Kingdom and Company (p. 291). 2. Exploration and Production (p. 295). 3. Refining, Transporting, Exporting (p. 299).
XVIII. THE ARABIAN PRINCIPALITIES, 1953-60
1. Kuwait (p. 302). 2. Neutral Zone (p. 308). 3. Bahrain (p. 312). 4. Qatar (p. 314). 5. South-Eastern Arabia (p, 317). 6. SouthWestern Arabia (p. 320).
XIX. THE LEVANT COUNTRIES, 1953-60
1. Turkey (p. 324). 2. Cyprus (p. 328). 3. The Lebanon (p. 328). 4. Israel (p. 330). 5· Jordan (p. 334). 6. United Arab Republic:
Syria (p. 335). 7. United Arab Republic: Egypt and the Canal (p. 340). 8. The Sudan (p. 347).
XX. MIDDLE EASTERN OIL, 1960: FACTS AND PROBABILITIES 349 1. The Industry Summarized (p, 349). 2. The Agencies of Development (p. 354). 3. Present and Future (p. 362).
1. Middle Eastern Countries: area, population, government,
II. Annual Oil Production, by countries. 368
III. Refineries in the Middle East, 1960 370
IV. Constitution of Principal Operating Companies. 372
v. Conversion Table (tons-barrels). 374
U.A.R. (Egypt) and Jordan Israel
U.A.R. (Syria) and Lebanon Turkey
Southern Iraq, S.W. Persia (Iran) Kuwait and Neutral Zone Bahrain and Qatar
Eastern Sa'udi Arabia with Bahrain Trucial Coast and S.E. Arabia Southern Arabia
The Oil Industry in the Middle East
B.A.P.C.O. : bid:
K.O.C.: l.p.g. :
NOTE ON ABBREVIATIONS AND QUANTITIES
Abu Dhabi Marine Areas. Anglo-Egyptian Oilfields.
Azienda Generale Italiana Petroli. Anglo-Iranian Oil Company Ltd. American Independent Oil Company. American Petroleum Institute. Anglo-Persian Oil Company.
Arabian American Oil Company. Anatolian Refining Company. Bahrain Petroleum Company.
barrels (bbl) per day.
British Petroleum Company Ltd. Basrah Petroleum Company Ltd. California Texas Corporation.
California Arabian Standard Oil Company. Compagnie Francaise des Petroles.
Ente Nazionale Idrocarburi.
Government Oil Refineries Administration ('Iraq). General Petroleum Authority (U.A.R).
Iranian Oil Company.
Iran Pan-American Oil Company. 'Iraq Petroleum Company Ltd.
Turkish Petroleum Corporation-Caltex Refinery
Iranian-Canadian Oil Company.
Khaniqin Oil Company Ltd. } according to
Kuwait Oil Company Ltd. context
Liquid petroleum gas.
Mediterranean Refining Company. Middle East Pipelines Ltd.
Mosul Petroleum Company Ltd. (Turkish) Mining Research Institute. National Iranian Oil Company. (Kuwait-Sa'udi) Neutral Zone.
Petroleum Concessions Ltd.
Petroleum Development (-) Ltd.
Qatar Petroleum Company Ltd.
Rafidain Oil Company Ltd.
Societe Iran-Italienne des Petroles.
Syria Petroleum Company Ltd. Trans-Arabian Pipeline Company. Turkish Petroleum Company Ltd.
tons per year.
United Arab Republic.
I. OIL FORMATION
THE presence in western Asia of rich petroleum deposits is due to a coincidence of favourable factors, operating throughout scores or hundreds of millions of years. The reconstruction of these factors and the assessment of each: the collection of a great body of information on the successive changes on land and sea in that region, and the accompanying earth movements: the tracing of the development of life-forms, the study of rock structures and sequences: the ascertainment of the halfmysterious processes by which petroleum itself came into existence -these achievements, which still contain their unknown and perhaps unknowable phases, have called for the contributions of geologist, meteorologist, astronomer, biologist, and chemist. The results whereby the regional history of the earth can now in outline be written, in the Middle East as elsewhere, form a remarkable monument to patient, penetrating, and co-ordinated research.
At no time since land and sea came into existence has there been pause in that oft-repeated cycle of events which, throughout the geological systems, has created the form and body of the modern world .. Disturbed at times and in places by volcanic action or by faulting or subsidence, the slow but inexorable upward and downward movements of this or that region of the earth's crust have alternately submerged the lands of what today is western Asia below sea level or elevated them far above it. And these lands themselves, by a distinguishable type of earth movement, have at various periods been stretched or over-weighted so as to form basins or depressions, have been laterally compressed or uplifted from below so as to form mountain ranges. Isthmuses have joined the separate continents, only to sink again beneath the sea or to broaden out into wide territories. The oceans by similar movement have been at times deepened, at times broken into shallow isolated lakes, at times left dry; the sea itself has at times been lowered or raised by polar freezing in an ice age or by thawing at its close. Concurrently with these cyclically-repeated continentbuilding or mountain-building movements the processes of
OIL IN THE MIDDLE EAST
denudation of the land-surface have ceaselessly continued, lowering and possibly demolishing mountain and plateau by the age-long action of rain and snow, wind and glacier, and chemical decomposition. Immense quantities of matter, first loosened and then washed or blown from the land, have been deposited by rivers in their estuaries and in the nearer seas, there to form sediments which by compression beneath the cumulative overburden become rock-masses. The texture and the mineral or chemical qualities of these rocks reflect the nature of the denuded mainland; in the course of their deposition under the sea they are sifted or sorted into the conglomerate and coarse sandstones dropped nearest to the shore, the fine sandstones and shelly or coral limestones in shallow water off-shore, and the fine-grained clay and shale left in deeper water farther out.
Yet again, in sea-areas beyond reach of land-derived detritus, calcium carbonate,. calcium sulphate, sodium chloride, and other minerals are deposited from solution in sea-water, to form limestone, gypsum, salt, etc. These various deposits may grade laterally and vertically one into another, as conditions change. The age of exposed rocks can be established by their own qualities and by their fossil content; it has, therefore, been possible for geologists to reconstruct much of the sequences of these normal processes as they have occurred in the Middle East, and to sketch the rise, the fall, and the extent of long-vanished lands and to identify the earliest mountain-building. Among the major land-masses, it is apparent, there have been differences in the degree of their stability; and, as elsewhere, solid nuclear areas of the most ancient rocks have influenced the continental framework. Such areas, never submerged unless along their fringes, have been at all ages the source of original sediment and have played their part also in restricting the lines or zones of surrounding earth-movement. Such an area is that of the 'Arabian Shield', an eastern continuation of the great Shield centred in northern Africa. Other regions have proved scarcely less resistant by reason of the rock-types of which they are formed, or of their own firm basing in the earth's crust; such are the compressed 'Median Masses' of central Persia and central Anatolia, which were compressed in early times and have resisted the later folding which deformed adjacent zones. Other areas, marked today by mountain ranges or by sedimentary basins, have proved less resistant and by their compliant reaction
to earth-movement have offered sites first for the formation and then for the storage of petroleum.
Ages before the mountain system of modern Asia had been formed, and before the division of land and sea had taken a shape recognizable today, the conditions of the-region had ordained that the first steps could occur towards the formation there of oil in immense quantities ': During Palseozoic times the Pre-Cambrian continental mass, which occupied the present site of western Asia, began to subside beneath the shallow epicontinental seas which ebbed and flowed round residual land-areas, fragments of which are still seen in parts of the Hijaz and Somaliland, central Iran, and Anatolia. The sea slowly gained upon the land, the phases of subsidence upon those of uplift, until the shallow basins of western Asia linked up to form part of the great Tethyan Ocean in Mesozoic and Tertiary times. The Tethys teemed with marine life, a proportion of which, thanks to special qualities in its molecular structure and the nature of the sea-bottom and to some power of chemical adaptation, was to prove capable of re-creation into oil. Vast quantities of such organisms lived, died, and sank to the bottom off-shore of the land-masses of the period and were there safely covered by the deposit above them of deep land-scoured sediments, able to protect them from oxidation and froin destruction by sea-scavengers.
Thus the three first essentials of oil-formation were present: seas with shallow in-shore reaches full of plankton and other animal and vegetable marine life, coasts offering zones of security, and the deep, regular accumulation of fine-grained sediments washed seaward by the familiar and ceaseless processes of land denudation. Where these processes occur without interruption for long ages in an area of sinking sea-floor and of sediments actively deposited, conditions are at their most favourable for oil-formation; and they were found conspicuously-more notably, indeed, than anywhere else in the world-in that area of western Asia which was one day to become southern Anatolia, western Persia, 'Iraq, eastern Arabia, and the Persian Gulf. In this wide area a deep and persistent geosyncline had formed which was sinking and refilling throughout the Mesozoic period.
Such sedimentation amongst and over the mass of marine organic matter is normally followed in succeeding ages by the compaction of the deposited silt and mud into rock, and by the B
OIL IN THE MIDDLE EAST
squeezing out of some or most of that rock's seawater content; and thereafter by stages of the transformation of the enclosed plankton into tiny but innumerable globules of liquid or gaseous petroleum by chemical action, by the action of anserobic bacteria, and by suitable pressures and temperatures maintained for long ages. This process of oil-making seems in the Middle East to have occurred principally in Mesozoic times, and possibly earlier than that, in the Permian period, and certainly later, in the Tertiary; but the reservoir-rocks in which oil is now found give no certain clue to those of its original formation. On the contrary, the processes of oil creation, it would seem, were followed or perhaps were accompanied by the gradual movement of the oil, under pressure of gravity or water-drive or its own newly-formed gases, from the fine-grained strata, where it came into being, to new homes in more porous, coarser-grained adjacent sediments of sandstone or limestone; and thereafter by its collection, from a state of diffusion over wide regions of rock, into smaller areas of relative, and finally of compact, concentration.
The Middle Eastern geographic features of our own times, and the changes of land level and stratification and mountain-building which produced them, are chiefly the products of movements in Tertiary times; that is, within the era stretching from some 75 million years ago until recent times. During this period, which was one of alternating submergence and emergence over much of the area, heavy deposition on top of earlier strata occurred in the sunken basin areas. It occurred also, to a lesser extent, wherever a shallow sea for a time transgressed the adjacent land-mass or washed over the fringes of the Arabian Shield or penetrated to the hard, flat heart of Persia and Turkey. During these ages were formed limestone rocks in which, thanks to easy access thereto from the source-rocks or the rocks of primary accumulation, and thanks also to its own hospitable cracks, joints and porous zones, much of the oil of Persia and 'Iraq is now to be found stored and safely capped by impermeable marl, shale, salt, or anhydrite. The great mountain-building movements of the middle and later Tertiary period, which straddled Anatolia, threw up the Armenian and Elburz ranges, lifted the Zagros from the heart of the sediment-filled Persian Gulf geosyncline, and folded the already elevated Oman ranges, were, perhaps, the successors of previous uplifts long since denuded, but recorded by irregularities in the
deeper strata. It formed, in world structure, part of the great Alpine-Himalayan system. These movements, the result of profound pressure on an unstable area between the more rigid blocks, led to the loss by exposure and erosion of any oil deposits which might have lain in the higher parts of the now intensely folded uplift; Zagros is the graveyard of dead oilfields ; but at the same time, by the parallel wave-like folding of the strata into troughs and ridges or anticlines which it created in the more gently deformed foothills, the movement made possible the accumulation of oil by density-segregation in arched-up segments of the reservoir strata, these segments or reservoirs being of exceptional amplitude and simplicity and capable of holding the oil and its attendant or absorbed gases concentrated from wide areas of original occurrence.
The deep rift-system west of the Arabian block, separating it from the greater block of Africa, began in the same Tertiary age to assume its present form; the sediments of that age were here laid, in the Levant and north-eastern Egypt, on the broken or buckled rift of the ancient Shield.
The history of later Tertiary times, until our own age-the 'recent' age of the last two or three million years-is one of the continued subsistence and the continued replenishment by sediments of the great syncline which the Zagros uplift had in part displaced and restricted: of continued folding on the same ranges: of local and irregular folding of, and a regional uplift around, the group of internal basins in the Turkish and Persian 'Median Masses': and finally of the emergence of shore-lines more and more approaching those of the Mediterranean, Persian, and Arabian seas today.
As the Middle East, fashioned by geological time, emerged into the period of that last afterthought of world-history, the appearance of man, it showed itself to have been dominated by three main factors. These were the Arabian Shield, the Persian Gulf geosyncline, and the system of mountain-folding to the north and east of these, with its enclosed 'Median Masses' of Persia and Turkey. The territories thus conditioned must, it is dear, be far from equal in their possibility of containing oil deposits. These could not exist in igneous rock or on the ancient crystalline shield of Arabia; nor was there, even in all sedimentary areas, an equal likelihood of oil wealth. There can be no oilfield where
OIL IN THE MIDDLE EAST
folding or breakage has been too violent to permit an oil accumulation, if originally present, to survive undispersed. Small structures can nowhere provide room for major reservoirs, nor could such accumulations ever have occurred in the vast majority of sedimentary areas without the aid of the original but rarely coinciding necessary elements. The occurrence of petroleum has, indeed, a close relation to the thickness and extent of marine sediments, to the relative positions of ancient shore-lines, to suitable rock movements subsequent to the oil formation, and to physical and biological factors not yet fully understood.
It must follow from this that petroleum deposits, at best, would later be found on a major scale only in rare places, in trifling quantities at more, and at most not at all. Nor could there be question, unless by some unimaginable coincidence, that the latterday political units could enjoy equal advantages, nor that oil occurrence could bear any relation to normal human needs or to agreeable surface surroundings. On the other hand, no Middle Eastern territory today existing could ever have been pronounced as entirely hopeless of possessing oil, since none is without some, and few without considerable, sedimentary areas.
Nor could the quality of the discoverable oil be foreseen. Crude petroleum, being always a mixture of many different gaseous, liquid, and solid hydrocarbon compounds, closely related but chemically and physically distinct, is never identical in any two locations; the proportions in which the various hydrocarbon series are represented, and the different-heavier or lighter, simpler or more complex-molecules of each series which are present, and the admixture of greater or lesser quantities of impurities in the oil, make some crude oils lighter, more fluid, and purer than others through a wide range of differences, of which those of specific gravity and sulphur content are the most practically important. They bear relation, no doubt, to varieties of original source material and to many vicissitudes suffered by the oil between its formation and the present age; but meanwhile the quality of oil which may be discovered in anyone structure or region is as unforeseeable as its quantity.
II. MIDDLE EAST OIL
The land units, with which this work will primarily concern itself, are the political units of the present-day Middle East. W t'
proceed, therefore, to survey broadly (and indeed with the crudest over-simplification) the geological content of each territory, far as are the geographical, and still farther the geological, boundaries from coinciding with the political,
Turkey is a country in which a. 'Median Mass', with areas of fairly deep sediment and capricious internal folding-lines, separates two arms of the great Alpine folding-system, one in the north fringing the Black Sea, and one, the Taurus, along the south. These ranges continue in the east to form the Elburz Mountains and the Zagros. South of the Taurus lies an area of sedimentation, a legacy of the sea-bottom of the Tethys; and farther east extends, within Turkey, the northern sector of the great Persian Gulf sedimentary area. Here on general grounds, given suitable conditions of deposition and preservation, important oil deposits could be expected, and folding or faulting might well have produced reservoir-structures.
Cyprus owes its final form to the same southern lines of Alpine folding, in which it forms a visible link; and close under Troodos lies a small Tethys-derived sedimentary area continuous, in olden days, with that of southern Turkey, north Syria, and 'Iraq. Syria itself, except for the southern sector of its coastal strip, belongs essentially to the same northern region of the Gulf sedimentary basin. It has continuity both in its sedimentary history and in some, at least, of its anticlinal folding; but with the Arabian Shield less deeply covered here by sediments, and with many signs of vulcanicity and faulting, only a part of the territory could be of oil-prospecting interest. Towards the south the further thinning of deposits renders the territory unattractive; but the rest of the area could never be dismissed as unworthy of exploration. Jordan has the character of southern Syria, but the north-east of the country is fairly sedimented and could be considered as forming part of the western 'Iraq geological province. The south must be without prospects, and the west-the Jordan Valley, Dead Sea, and Wadi 'Araba depression-belongs rather to the quite different system of the Lebanon, north-eastern Egypt, and Israel.
This Levantine area, aligned along the Mediterranean coast, owes its character not to the Taurus-Zagros folding and its effects on the Gulf geosyncline, but rather to the Tertiary phases of an ancient system of faulting, the result of opposing pressures in the
OIL IN THE MIDDLE EAST
African-Arabian block itself: faulting which resulted in the sinking into deep depression of the Red Sea, the Gulfs of Suez and 'Aqaba, and the Dead Sea: the uplifting of the hills of Judea and of Jordan; and the continuance northward, to western Syria and Lebanon, of the same north-south trend in mountain-building which was the alternative result of similar pressure from east and west. The Lebanon and western Syria carry ancient as well as Tertiary deposits, not necessarily incapable of oil production; but the area is basically broken rather than folded, and surviving structures capable of containing oil are small.
In north-eastern Egypt the same deep fault or rift movement has broken the ancient continuity of Africa with Syria and Arabia, has in different periods of the Tertiary era thrown down the depressions of Suez and 'Aqaba, has sunk the Red Sea between parallel lines of mountains, and has tilted platforms of basic igneous side by side with sediments of various ages, so that the whole forms a complicated system of rigid and plastic rocks which was destined to prove baffling to the oil-prospector. The absence of deep and continuous sediments must in any case limit the oil possibilities of the country.
The main body of the Arabian peninsula consists essentially of a quadrilateral land-mass, elevated in the west and descending towards the Gulf geosyncline in the east. The territories of the three states which today form south-western, southern, and southeastern Arabia-Yemen, the Aden Protectorate, and Oman-all represent a fringe of the continent, deeply sedimented by the transgression of the sea over it, all slope inwards towards the heart of Arabia, and all terminate southwards in a faulting system related to the depression which forms the Gulf of Aden. Thus Yemen and the Aden Protectorate are today uplifted areas where heavy (and not impossibly oil-bearing) sediments, with a base of granite rock in the Yemen and the complication of widespread vulcanicity, stand on the southern rim of the Shield. The coastal uplands of the Hadhramaut continue into Dhofar, the outlying province of Oman; and eastward therefrom they give place to the southern continuation of the vast sand-covered Ruba'al-Khali, before the high Oman mountains are reached. The Sultanate of Oman is dominated by a high and mainly north-west-south-east mountain ridge which, first uplifted in remoter ages, represents since the Tertiary mountain-building the southernmost branch of
THE BEGINNING 9
the Persian (Zagros) folding.! South and west of its mountains Oman contains broad and gently folded sedimentary areas where oil might well have accumulated.
Sa'udi Arabia includes, besides the central and western crystalline Shield, a narrow line of sediment on the Red Sea coast, washed throughout the ages from the plateau and volcanic mountains of western Arabia. It includes also the northern extension of the Shield itself, extending into Jordan and 'Iraq: and, more significantly, it covers the wide area of deep sediments which forms the western flank of the Gulf sedimentary basin. These sediments of the Tethys sea extend southward into the Ruba'al-Khali, and eastward disappear beneath the Gulf waters. The whole forms an area of the highest promise for petroleum wealth. The same is true, for the same reasons, of the lesser states of the southern Gulf coast between the northern tip of the Oman mountains and the base of the Qatar peninsula. The latter with its broad shallow arch: the visible anticline of Bahrain island: the sand-buried flatness of the Kuwait principality: all these belong to the same western area of the great geosyncline and emerged into modern times as a region of probable oil-storage.
The kingdom of 'Iraq includes a part of the mid-Zagros ranges, a submontane area in which the deep deposits south-west of these are gently folded, and a broad region farther west, astride both the great rivers. In the last of these regions the continued depth of the sedimentary rocks and their regular anticlinal folding extends to the north Syrian border and across it, but in the south and southwest prepares, with thinner sediments and less folding, to meet the north-eastern rim of the Arabian Shield. Persia contains more diverse geological elements. Its south-western foothill zone, where lie the oilfields, is more complicated than north-eastern 'Iraq, thanks to the broken and twisted later formations that overlie the great Tertiary anticlines and thanks also to the pressures of ancient salt-plugs. East of the main Zagros ranges the resistant 'Median Mass' of Persia is diversified by folding of its own, and a series of small basins contain possibly oil-bearing sediments. Northern Persia, where a main range of the Alpine-Himalayan system has given its modern shape to an area repeatedly crushed and uplifted in earlier ages, belongs essentially to the Russian zone and has
1 Others dissociate the Oman mountains from the Zagros system and treat them as a purely Arabian phenomenon.
OIL IN THE MIDDLE EAST
little relation to the 'Iraqi-Persian conditions of the Zagros foothills.
III. SURFACE SIGNS AND EARLIEST USES
During all human history, and for millennia before, there have been in western Asia clear surface indications of the presence of petroleum. In places an oil-permeated rock-stratum outcrops on a hillside, elsewhere deposits of bitumen cover the ground, elsewhere gas or liquid oil seeps upwards through a crack or a weakening in the cover-rock of a buried reservoir. Thus in Egypt the seepages at Jabal Zait earned that ridge its Roman name of Mons Petroleus, and other traces had long been noticed on the same coast, in the Sinai Peninsula, and in some of the Red Sea islands, notably the Farsan group. Oil-shales were known in the hinterland of Aden. In the Persian Gulf signs of oil or bitumen marked the crest of the ridge on Bahrain Island and were visible in the desert near Kuwait. 'Iraq contained the great bitumen deposits at Hit and elsewhere on the Euphrates, the lighted gas escape-the 'burning fiery furnace' -near the future Kirkuk, traces of oil in the Upper Tigris, and abundant seepages at Qaiyara,Kirkuk, Tuz Khormatu, and in the Mandali district. In Persia traces of oil or bitumen were found in the north-west near Qasr-i-Shirin and conspicuously in ancient Edom. The Dead Sea was known for its indications of petroleum, and these were repeated in the villages of the Lebanese and 'Alawite tribesmen. Deposits of .natural asphalt were found near Lattakiya. In Turkey shows of . hydrocarbon substances occur on the Bosphorus, inland from the Black Sea coast, in the neighbourhood of Alexandretta, Antalya, Van, Diyarbakr, Siirt, and jazira ibn-Tlmar, and elsewhere in widely scattered localities. The connexion between such longfamiliar surface appearances of oil and the presence of commercially valuable deposits is, in fact, uncertain and often misleading; to primitive man, certainly, the conception of an oil-pool on the now familiar scale did not or could not exist; its use by human beings was inconceivable; and the trifling surface deposits were accepted as no more than minor mysteries of nature.
Even so, they were utilized. Bitumen was employed by all generations of men in Egypt, 'Iraq, and Persia as mortar or flooring-material by the builder, as domestic water-channel lining by the plumber, as caulking material by the shipbuilder. It helped in
the construction of flood-dykes, was a resource for the potter, and was useful to the jeweller, toolmaker, and other craftsmen; it provided flares for lighting and a substitute for wood as fuel. In ancient religion the inflammable seepage-gases of Susiana or Khuzistan played a part, and their sites were marked by temples of the fire-venerating faithful. In war, arrows tipped with lighted petroleum showed the way to the 'Greek fire' of the Middle Ages; and in early modern times, or perhaps much earlier, men devised simple processes of distilling which gave, with abundant smoke and spluttering a serviceable kerosene for their lamps. Crude oil was prized in every land for its medicinal properties for man and beast.
The petroleum for this and every purpose was gained easily from the many seepages in use, sometimes by collection or skimming, potful by potful, from a surface trickle of the dark fluid. Rough galleries were made to improve access and shallow holes were dug by hand. Bitumen collected from the ground was taken on donkey or camel-back t.o a place of melting. Seepages on private land belonged to the landowner or, if on the royal estates, could be leased for an annual payment or bestowed outright by royal patent.
IV. BIRTH OF THE INDUSTRY
Successor to these ancient ways, the modern petroleum industry was called into existence in the nineteenth century by both the domestic and industrial needs of fast-increasing populations. Until then animal and vegetable fats and oils had served all purposes, but they proved inadequate for the needs of growing industries and a public which demanded more and better illumination; and, from the mid-century, they were supplemented and finally replaced by mineral-oil distillation, by the first successful mechanical drilling for 'rock-oil' (in 1859), and by the rapid growth of the industry in its modern forms: production, tank-wagon and pipeline transportation, refining, and distribution.
By 1900 the oil industry in America, organized and yearly expanding, had produced fortunes and failures, had established a primacy in the petroleum trade which was long to endure, and was exporting products to the rest of the world. In Europe the new technique of drilling was applied in one country after another, wherever surface indications of petroleum could raise hopes. Production by this means was achieved in Russia from 1873 onwards
OIL IN THE MIDDLE EAST
and in Galicia and in Rumania from 1898. Refining and distributing activities were in the hands of scores of new or newlyspecialized companies. In the United Kingdom, as elsewhere, the handling and marketing of imported petroleum products became in themselves an important trade; and the increasing interest of experts and financiers was aroused, year by year, in the oil possibilities of remoter territories.
Farther east the oil industry of Burma, which with hand-dug wells had already existed for a century, increased after 1890 with the modernization of its methods. The resources of the Netherlands East Indies also began to be seriously exploited by a Royal Dutch Company," founded in the same decade. The family trading business of Samuel Brothers, London merchants, came, at the same period, to include first the distribution of petroleum products, then the acquisition of oil-bearing territory, and finally in 1892 the building of their first oil-tanker. Ten years of keen competition between the Royal Dutch and the Samuels, who founded the Sheil Transport and Trading Company in 1897, ended in 1902 with the merging of their transport and marketing activities in the joint Asiatic Petroleum Company.
V. MIDDLE EAST OIL IN THE NINETEENTH CENTURY
In the Middle East, where the nineteenth century could show no such record of petroleum development, the need for oil productsthat is, for lamp oil--was increasingly felt with the rising living standards of the upper class. At the same time developments in the outside world, industrial as well as political, became better known with increasing contact and communications. But the countries themselves were little explored, repellent by their conditions and remoteness, arid unattractive as a field for major foreign investment.
The Ottoman Empire continued throughout the century to keep its dead or dying hold not only on Anatolia but also on the Arab vilayets of Aleppo, Damascus, and Beirut.P which covered the modern states of Syria, Lebanon, Israel, and Jordan: on those of Mosul, Baghdad, and Basra, which covered the modern state of
1 Its head was J. B. August Kessler, until his death in 1900; he was then succeeded by a young assistant, H. W. A. Deterding, the future giant of the Shell Group.
2 And the two 'independent' sanjaqs of Dair al-Zor and Jerusalem.
'Iraq: and, with various degrees of intermittent feebleness, on the Hijaz, on the Yemen, and, after 1871, on al-Hasa and Qatar in the Persian Gulf. Its weak, capricious, and corrupt government was unsuited in every way to the initiation of major industrial enterprises; the mining law was ill-drafted and largely inapplicable, its execution uncertain: security was lacking outside the towns, antiforeign feeling was common, the courts venal, and the desire for progress still vague and inoperative.
It was not, in these conditions, surprising that in the Turkish Empire no petroleum enterprise existed, save humble and primitive local activity in the seepage-villages of Anatolia or 'Iraq, and some shallow wells or galleries at the Marmora shale-deposits and in a seepage area of Alexandretta district. Even so, the possibility of greater things was not excluded. Reports of oil occurrences, notably those in the Baghdad and Mosul vilayets, were studied in Istanbul; an able British-educated Armenian, Calouste Serkis Gulbenkian, son of a wealthy merchant, was notable among those who interested themselves in such possibilities. In the early eighteen-nineties he had submitted a report on Turkish oil properties to the Ministry of Mines. The Sultan himself took action in two directions. He decreed the transfer of the petroleum revenues from the Treasury to his own Privy Purse by firmans of 1890 and 1899; and through the Crown-lands (Saniya) Administration he secured for himself a number of the known oil-bearing lands. Moreover, on the grant of the first concession given to the German-owned Ottoman Railway Company of Anatolia, in I888, a vizirial letter promised the Deutsche Bank (then and thereafter the effective controller of German enterprise in Turkey) a priority of rights in mining development, including petroleum. Applications from other foreigners and from resident Greeks and Armenians were made in the same period for development rights in one part or another of the Empire. German influence in Istanbul was constantly on the increase and redoubled after the Kaiser's visit in I898; their companies and banks were certain to prove intolerant of rivals in their chosen sphere; but Englishmen or Dutchmen, in contact with Royal Dutch interests, or those of Samuel Brothers, did not fail to keep their companies aware of current affairs in Turkey, while Gulbenkian watched every tendency and did business with both British and Russian interests.
The greatest possibilities for Ottoman oil seemed to good
OIL IN THE MIDDLE EAST
observers to lie in the Arab vilayets of Mosul and Baghdad. A mission of German experts had visited the territory in 187 I and had reported in glowing terms. The Wali, Midhat Pasha, had himself taken steps to develop the Mandali seepages and had built a short-lived refinery at Ba'quba. After the acquisition by the Privy Purse of the seepage lands of Tuz and Qaiyara in the eighteen-nineties, a French expert was brought to the latter. Efforts were made to increase the yield there by deeper diggings, while the treacly, viscous oil which was daily collected was distilled there and at Tuz on primitive lines, as also at Baba Gurgur near Kirkuk, where the seepages were owned under ancient firman by the local Naftchi family. The bitumen of Hit continued with little change to support an industry already 5,000 years old. These and the lesser petroleum occurrences of northern 'Iraq began to be noticed by foreigners in increasingly modern terms and were correlated to the regional geology by such European observers as M. de Morgan in 1892, A. F. Stahl in 1893, Colonel S. R. Maunsell in 1897, and Baron von Oppenheim in 1899.
In Arabia no move was made in these years towards oil inquiry or research. Persia offered a scarcely more attractive field, it seemed, for the investment of foreign capital; security was at a low and justice at the lowest level, commercial morality at the best uncertain, the administration capricious, venal, and incalculable. Nevertheless, even before 1900 there had been movements towards oil development, which the! existence of known seepages seemed to render not impossible. The production of petroleum throughout the Persian Empire was included among the rights bestowed light-heartedly by the Shah in 1872 on Baron Julius de Reuter, a naturalized British subject, in a grandiose concession, which covered the construction of railways, a banking and customs monopoly, and the development of all minerals; but the concession, in every way absurd and frowned upon by the British Government, was soon afterwards cancelled-with. confiscation of the caution-money deposited by the concessionaire.
The next stage was in 1884, when the firm of Hotz and Co. of Bushire were permitted to drill for oil, with the crude appliances of the time, near the seepages at Daliki in the Fars province. Their efforts failed. Five years later de Reuter, undaunted, obtained a second concession. It granted him a sixty-year privilege of conducting a note-issuing bank and the exclusive right of
exploiting minerals, including oil. The Persian Government was to receive 16 per cent. of the net profits of whatever enterprises he should undertake. This concession led to the foundation of the Imperial Bank of Persia (which, with a change of name, continued to operate in Persia until its voluntary withdrawal in 1952) and of a Persian Bank Mining Rights Corporation. The latter drilled two wells at Daliki and another on Qishm Island, but without success. In 1899 the Government pronounced the Corporation's rights invalid. Production from the seepages at Shushtar, Daliki, Qasr-iShirin, and elsewhere continued on primitive lines.
In populous and relatively sophisticated Egypt, the period following r882 was one of rehabilitation after half a century of gross misrule. Security was good, the penetration of Western ideas proceeded fast, foreign rights were protected, and industry in limited, semi-modern forms was not unfamiliar. It was in Egypt that, if Middle Eastern oil existed, its development seemed the most probable and the existence of surface traces was well known. In 1869 the holder of a sulphur concession, bestowed six years earlier by the Khedive, discovered the presence of oil at Gemsa (Jamsa), some miles south of Jabal Zait, at the mouth of the Gulf of Suez. The law provided for the exploitation of oil, as of any mineral resource, by licence and lease from the Government; and attempts were made accordingly during the next fifteen years to assess, by deeper hand-dug wells and galleries, the potentialities of the Gemsa and Jabal Zait section of the coast. In 1885 the Minister of Works superseded these efforts by inviting the services of a Belgian scientist to inspect the site. Favourably impressed, the expert arranged for the import of modern European equipment and Russian, American, and Rumanian 'borers'. Five wells of some hundreds of feet in depth were drilled at Gemsa, but no oil-flow was encountered; another unsuccessful well was drilled at Jabal Zait. The scale of the Egyptian Government's activity in the area was considerable; during the later eighteen-eighties a large settlement of workers, a light railway, a workshop, and wells up to 700 feet deep testified to their efforts and expenses. The failure of all these labours, however, did not destroy the continued interest of Egyptians and of foreigners in the possibilities of Egyptian oil. Small syndicates for prospecting in this or that area of the coast of Suez or Sinai continued to be formed; among these, that of Sir E. Palmer, a former Financial Adviser, worked at Gemsa for a year before abandoning hope.
BEFORE THE FIRST WORLD WAR
1. THE NEW CENTURY
DURING the early years of the twentieth century the world oil industry was called upon greatly to expand its production, refining capacity, and organization. Production, which barely exceeded 4 million t/y in 1880 and 20 million in 1900, had in 1915 reached 59 million, of which a mere half million came from the Middle East. The use of oil fuel for steamers spread widely in merchant navies and by 1914 had become dominant in fighting fleets. The use of mineral oil for illumination purposes was general, save in the most backward countries, and had proceeded far in the field of lubrication. The use of bitumen as a road surface was widespread. More important than all these, the development of the internal-combustion engine changed the whole balance of the industry. The role of petroleum in peace-time, foreshadowed already, was fully established during these years: its part in war was soon to be not less evident.
During the period 1900-14 oil was for the first time exploited on a commercial scale in Mexico, Peru, Egypt, Persia, and Borneo, and further developed in the countries already producing-North America, Russia, Rumania, Poland, Burma, and the Dutch East Indies. No commercial oil had by 1914 been discovered in Venezuela, Sarawak, Arabia, 'Iraq, Colombia, or Ecuador, and little in Canada, Trinidad, or the Argentine.
In oilfield practice, some but not much of the earlier haphazard wastefulness was being corrected. Rotary drilling gained ground rapidly after 1912, offering greater depths and less deviation. Steel replaced wooden derricks. Pipelines were in general use. Refineries were moving, by new designs and procedures, towards greater efficiency. Geological information grew from all quarters, though its application to oil-finding was, as yet, imperfectly understood; geophysical methods of oil-structure discovery were under study from 1912 onwards.
New major oil companies came into flourishing existence year by year. In Europe and Asia the understanding between the Shell and Royal Dutch Companies was completed by the formation, in
BEFORE THE FIRST WORLD WAR 17
1907, of joint integrated companies on a basis of three-fifths Dutch and two-fifths British ownership. These were the Anglo-Saxon Petroleum Company and the Bataafsche Petroleum Maatschappij with headquarters respectively in London and the Hague; the Royal Dutch and the Shell Transport and Trading remained as holding companies, and the combined group survived a period of intensive rivalry with. Standard Oil. Though oil production in Europe was still important only in Russia, Rumania, and Poland, the business of refining, shipping, distributing, and marketing grew rapidly in these years.
II. PERSIA AND THE A.P.O.C.
The interesting seepages of western Persia had attracted the notice in the eighteen-nineties of more observers than Hotz and the Banking Corporation (pp. I4-15). The French archeologist de Morgan had published in 1892 an account of Persian oil prospects; and this, with other technical notices, came to the attention of an Englishman, William Knox D'Arcy, who had made a fortune in Australian gold-mining. He formed in 1900 a small grouphis own assistant, A. L. Marriot, a French ex-diplomat, and a Persian-Armenian high official-and set them to work in Teheran to obtain an oil concession. Some Russian opposition to D'Arcy's negotiators was reported and the Persians proved capable bargainers; but on 28 May 190 I a concession, regarded by all as highly speculative, was granted to D'Arcy by the Shah. Thus was permitted to work for Persia an enterprise from which that country was, for half a century, to derive enormous direct and indirect benefits.
The concession to find, exploit, and export petroleum was granted for sixty years, to end on 28 May 1961. It covered the whole of Persia except (thanks to Russian influence) the five northern provinces; it conferred the exclusive right to build pipelines to the south coast; and it granted comprehensive customs and taxation exemption. The concessionaire was bound to form within two years a company or companies to carry out the concession, and on the establishment of the first of these was to pay to the Persian Government £20,000 in cash and a further £20,000 in paid-up shares. A royalty equivalent to 16 per cent. of the annual net profits was due to the Persian Treasury.
Even before signature D' Arcy had sent a geologist to Persia and
OIL IN THE MIDDLE EAST
wild mountainous areas in the south-west and west of the country were inspected. In the summer of 1901 drillers, mainly Polish, were engaged. Drilling equipment was bought and, with infinite difficulty, conveyed to the first drilling site; this was the seepage area of Chiah Surkh, near Qasr-i-Shirin, a locality then on the Persian side of the Perso- 'Iraq frontier. 'With the drilling gear went all technical and domestic supplies for the pioneer party forcing their way via Basra and Baghdad through barrages of obstruction. Security was poor on both sides of the frontier, rifleshooting near the camp was habitual, stoppages of work were frequent, the blackmailing demands of local chiefs and landlords incessant; but drilling began under the tough and devoted G. B. Reynolds. The First Exploitation Company was registered in 1903, in compliance with the prescribed two-year period.
Operations in the summer of 1903 produced a slight show of hydrocarbon gas at 1,665 feet, followed by a trickle of oil. In June 1904 the second well, at a similar depth, gave a flow of oil, but a first output of 180 bid fell rapidly to 25. Output of this order, so far from the seaboard, could not lead to 'commercial production'; and it was decided to try an alternative area, far to the south in the province of Khuzistan (or 'Arabistan), to which the approach was through Muhammara at the Karun mouth. The site selected was at Mamatain, near Ram Hormuz. Here the lack of all passable tracks, the vagaries and thieving of the tribesmen, the local deficiency of supplies, the demands of the powerful Bakhtiari Khans, who dominated the countryside, repeated the troubles of Chiah Surkh. In spite of all, late in I906 a first well was begun and Reynolds was optimistic. Funds in London for the continuance of the work, after unsuccessful approaches to British and French financiers, were found (not without Admiralty assistance) by enlisting the help of the Burmah Oil Company and Sir John Cargill. The latter in May I905 formed the Concessions Syndicate Limited with D' Arcy as a director to take over the assets of First Exploitation and to provide money for continuing operations. These funds were almost exhausted by the summer of 1907; and the two wells at Mamatain, having reached 2,170 and I,940 feet, proved unproductive.
The rig was next moved, for a last attempt, to Masjid-i-Sulaiman, the site of an ancient fire-temple, where in January 1908 a first well was spudded in, and a second in March. Traces of
BEFORE THE FIRST WORLD WAR
gas were observed in mid-May and in the early morning of 26 May a strong flow of oil started from a depth of 1,180 feet. This moment, seven years after the signing of the concession, with the resources of the Syndicate exhausted and with orders to discontinue drilling already drafted or (as some say) dispatched, was in fact the triumphant turning-point of the whole enterprise and one of the most significant events of all Persian history. Ten days later oil and gas werereached in No.2 well at 1.010 feet and work could proceed with full confidence.
The oil at Masjid-i-Sulaiman comes from a limestone reservoirrock of lower Miocene to Oligocene age, 1,000 feet in thickness and folded in a spacious, but simple, anticline. The oil is of gravity 38 degrees A.P.I. The limestone, known as the Asmari from its surface outcrop in the imposing mountain of that name, is overlain by an anhydrite salt and shale series known as the Lower Fars, which is folded and contorted in a manner well calculated to conceal the anticline below. The surrounding terrain was in 1908 (and is today) a broken and uncultivable waste, in a climate of extreme severity, and totally devoid of all resources: a setting less favourable for modern industry could not well be imagined.
The discovery at Masjid-i-Sulaiman solved the immediate financial difficulties of D' Arcy and the Syndicate, and led directly to the formation in April 1909 of the Anglo-Persian Oil Company with an initial capital of £2 million. Lord Strathcona, then aged 89, became its first Chairman, with D' Arcy as a director until his death in 1917; Charles Greenway became Managing Director. Managing Agents, Lloyd Scott & Company-later Strick Scottwere appointed in 1909 to co-ordinate work from a headquarters at Muhammara, where J. B. Lloyd, C. A. Walpole, and T. L. Jacks were the pioneers of the organization; the first and third of these became, later, directors of the Anglo-Persian.
Developments in Persia from the spring of 1908 to the outbreak of the World War in 1914 proceeded at a pace which represented the maximum then practicable. Further drilling confirmed the existence of a great oilfield; many wells, to a total of some thirty by 1914, were deliberately stopped short of the pay-rock with the intention of later deepening. The first beginnings of permanent housing, amenities, and a settled social life were made at the oilfield; dry stream beds were made passable, a water-supply
OIL IN THE MIDDLE EAST
provided, gathering lines and tankage erected, workshops and stores organized, a club and hospital appeared. As the first essential towards the export of oil, a pipeline to the sea across the high intervening ridges and the flat plain of Khuzistan was planned late in 1908. Its construction was started by a Glasgow contractor in 1909 and completed in June 19II after victory over the many difficultiesof unloading, river and animal transport, transhipping at the Karun rapids, and maintaining and teaching a totally urraccustomed labour force amid fierce heat, discomfort, and illness. The line, of 6- and 8-inch diameter, was designed to carry 400,000 tons of oil a year. Its construction and that of its pump stations and tankage at Tembi, Mulla Sani', Kut 'Abdullah, and Dorquain, owed much to the efforts of Charles Ritchie (who died in Basra in 1913) and J. A. Jameson, who was to give forty years of service to the Company and end as a director. The telegraph line which accompanied the pipeline was completed by 191 I.
On the coast, the agreement made in July 1909 by Dr. Youngcombined Medical and Political Officer-with the Shaikh of Muhammara provided the Company with an area of one square mile for the intended refinery on Abadan Island, an uninhabited mud-flat half-way between Basra and the sea. The refinery, whose construction occupied the Company's efforts from 1910 to 1913, was first designed for a capacity of 120,000 tons a year; but this plan was enlarged even before its completion. The course of erection was hindered by delays in shipping from Great Britain, by the need to recruit Indian and European as well as Persian staff, by an outbreak of cholera, by the necessity to provide or improvise scores or hundreds of items of equipment or material from local or 'Iraqi sources, and by unforeseen modifications in the design of the plant. Its completion, in consequence, lagged behind that of the pipeline; but a first distillation unit was tested in August 1912, and later in that year enough throughput was secured to begin to supply the Persian and 'Iraqi markets and to enable the dispatch of the first shiploads from the wharves. In 1913 the whole refinery was working, not without interruptions, and extensions were in immediate prospect. Persia had thus joined the ranks of the world's oil-producing countries, with an output of 4-3,000 tons in 1912, 80,000 in 1913, and 273,000 in 1914.
The interest of the British Government in the enterprise, in an
BEFORE THE FIRST WORLD WAR
age when navies were fast changing to liquid fuel, had been shown already by its word in season to the Burmah Oil Company in 1905; and in 1912 a Royal Commission pursued impatient investigations with the Anglo-Persian as to the supply of fuel to the Admiralty. Winston Churchill, First Lord of the Admiralty, emphasized in the House of Commons the necessity of reliable oil supplies, and late in that year a Commission which included John Cadman, a Bir-mingham professor, visited the Persian fields. Its fully reassuring report led to the recommendation that the Anglo-Persian should then and thereafter be financially supported by the Government. Additional shares in the Company were to be issued, the Treasury was to acquire 5 I per cent., and two Government directors were to be appointed, with a right of veto to be exercised solely on matters of the highest policy. The Act of Parliament giving effect to these arrangements received the Royal Assent six days before the outbreak of war in August 1914. The investment, in spite of much contemporary criticism, was, in fact, destined to be an immensely profitable placing of public funds. A fuel-supply contract was concluded in May 1914.
In the next stage of the Company's operations, its field activities were to be pressed forward; tests outside the proved area were to be made-at N aftak nearby, at White Oil Springs, and near Ahwaz; the pipeline was to be trebled in capacity by a new ro-rz-inch line, and the refinery increased by new distillation units. The Company's field at Chiah Surkh was thought likely, if it proved to be productive, to be of value should the projected BaghdadTeheran railway be constructed.
Relations between the Company and the central Government were cordial and correct. The political struggles of Teheran were happily remote from the Company's works, and the central Government authorities showed little or no interest in the enterprise which they had authorized. After the revolution, the Shah's writ still ran but feebly in Khuzistan, and the local rulers-the Shaikh of Muhammara and the Bakhtiari Khans-who retained all their power, were the authorities with whom perforce the Company was most in contact. The subjects of these potentates formed the bulk of the scanty and shifting pastoral and agricultural population, who were of all men the least likely, it appeared, to settle to industrial tasks. It was possible, nevertheless, to arrange with the Khans, for cash, for the preservation of fair local security.
OIL IN THE MIDDLE EAST
Unskilled labour was easily collected, though many workers departed seasonally back to their tribal tents. Others quickly acquired skill in the simpler tasks, and were joined by Persian artisans from elsewhere and by strangers from 'Iraq and India. The Company from the first adopted standards of pay and treatment for its workers which were far in advance of anything seen hitherto in that or any neighbouring country, and daily contact with reasonable and humane employers, fair and punctual payment of wages, an excellent medical service, and the opportunity to acquire higher skill and higher positions offered a new and hopeful element in the life of the Bakhtiari hills and the shores of the Shatt al-'Arab.
Lord Strathcona died early in 1914, and was succeeded as Chairman by Sir Charles Greenway. The formation in June 1914 of the D'Arcy Exploration Company as a wholly-owned A.P.O.C. subsidiary was intended to concentrate prospecting activities. Ten months later the British Tanker Company was registered. Meanwhile, the financial arrangements agreed with H.M. Government were carried out, leaving the latter as effective majority shareholder, and the Byrmah Oil Company as the largest single other participant.
The Egyptian oil industry, in a natural setting more desolate even than that of Persia, came into existence in the early years of the century, after the attempt by foreign, mainly British, enterprise and by the Egyptian Government to find oil had continued fitfully since the eighteen-eighties. The Cairo Syndicate obtained in 1904 two forty-five-year leases, one for land near Kenna on the Nile and one in the Sinai Peninsula; drilling was carried out in the latter, for which a Sinai Petroleum Syndicate was formed. From the enterprises of other small but hopeful companies no field work resulted; some lacked finance, some had no object but to sell the rights they had acquired. The plans of the Helouan Petroleum Company came to nothing effective, and the same was true of Egyptian Ventures Limited, of the Bedouin Syndicate Limited, and of the Western Sinai Petroleum Prospecting Syndicate.
Meanwhile, the Egyptian Petroleum Company, registered in December 1905, passed its licence for part of the Gemsa tract in 1907 to the Egyptian Oil Trust Limited. The Trust proceeded to drill; and two years later, early in 1909, it found the long-elusive
BEFORE THE FIRST WORLD WAR
Gemsa oil in quantities then reckoned considerable. The oil, with a gravity of 39 degrees A.P.L, was found in Miocene sandstone at a depth of 1,290 feet and its presence was confirmed by another well in October. The Trust's area of fifty square miles was taken over in 1910 by Red Sea Oilfields Limited and the well, drilled forthwith by the new owners, continued their predecessors' success; no. 4 produced oil which reached the surface unpumped and no. 6, with a depth of 746 feet, was reported as a gusher.
The Shell group had long watched Egyptian developments with interest and now thought the moment opportune to intervene. Anglo-Egyptian Oilfields Limited, a Shell creation, was registered in July 1911. It acquired the properties and rights of Red Sea Oilfields Limited, of the Egyptian Oil Trust, and of the African Prospecting Syndicate, a connected body. These properties included the Gemsa discovery. In the new Company, whose capital was in 1912 increased to £1 million, 'A' shares were taken by the Anglo-Saxon Petroleum Company (p. 17), and 'B' shares by the vendor companies. In 1913 a block of 100,000 'C' shares was issued free to the Egyptian Government, carrying (with certain restrictions) a 10 per cent. equity in the Company, Management was placed in the hands of the Anglo-Saxon, and so remained for the next forty years. The royalty conditions under the 1912 lease included payment of 2-!- piastres (about 6d.) per 100 gallons of crude oil won.
The properties at Jabal Zait acquired from African Prospecting were abandoned not long afterwards as valueless, after four dry wells had been drilled. Gemsa field, however, was put into immediate production and with the help of numerous shallow wells its output was increased from 2,793 tons in 19II to 27,960' and 12,620 tons in the following two years. The necessary field installations-workshops, tankage, stores, a jetty, dwellings, a hospital -were erected, and all efforts were made to locate other oilpockets which might probably exist. Shipments of crude were made in a small tank-steamer to tankage erected at the Company's depot at Suez. The construction of a small refinery at the latter place was soon completed and its output taken by the closely related Asiatic Petroleum Company. Surplus refining capacity was used profitably for the treatment of crude oil brought by sea from other countries.
Conditions at the oilfields were from the first severe but not
OIL IN THE MIDDLE EAST
intolerable. Labour was obtained from Kenna on the Nile and worked with fair contentment in a world wholly remote from the rest of the public. European staff, in this sandy and gravelly wilderness far from all humanity save a few nomadic tribesmen, settled down to live in normal, if isolated, cantonment conditions. Water and stores of every description were brought by sea from Suez -. Exploring and surveying expeditions working inland used camel transport, with carrier pigeons as their means of telegraphy.
The next stage was the discovery in 1913 of another and more considerable oilfield at Hurghada;' some thirty miles to the south -an event which, no doubt, saved the Anglo-Egyptian enterprise from more or less imminent abandonment. Production was here obtained from two horizons in the Miocene series and one, more important, in the Cretaceous at depths from 1,600 to 2,000 feet. To this field Anglo-Egyptian moved its local headquarters in 1915, and it became its main and, latterly, its only supplier for twenty-five years. The leases covering Hurghada, granted between 1914 and 1923, provided for royalty payments similar to those at Gemsa.
The Hurghada oil was of sluggish viscosity, with a gravity of some 22 degrees A.P.!., a high sulphur content, and a heavy admixture of water; but in quantity, at least, it offered more than the already falling Gemsa supplies. The drilling of further wells was pressed on with; storage-tanks, a jetty and industrial buildings were erected. Every effort was made to explore the Hurghada field, which in 1914 produced four-fifths of a total Egyptian production barely exceeding 100,000 tons; but the enterprise continued at this stage to show a financial loss, which must have proved fatal to less resolute proprietors.
Other companies had been less successful. The Eastern Petroleum Company had been formed to acquire three concessions on the Gulf of Suez from the Gemsa Syndicate, two of which covered areas on the mainland, and one of which islands in the Red Sea. These properties were later transferred to the Suez Oil Company, a concern closely connected with the Eastern Company, with which it amalgamated in 1916. The Eastern-Suez group drilled wells at Jubal Island and Ranim Island, without success, and through a subsidiary, Gemsa Oil Reefs, carried out prospecting in Sinai. The outbreak of war in August 1914 stopped, for five years, these and all similar activities.
1 The correct place-name is Ghardaqa,
BEFORE THE FIRST WORLD WAR
IV. THE TURKISH EMPIRE AND ARABIA
If, in spite of clear surface indications of their presence, the development of oil resources in the Ottoman Empire in this period was little attempted, the reason lay partly in the chronic maladministration of the Turkish provinces and the suspicious attitude of Turkish officialdom, and partly in the rivalries of wo"uld-be concessionaires, whose contending claims helped to postpone governmental decision. In fact, no enterprise in Turkey led to oil production in these years, nor, in spite of brief visits to 'Iraq by European geologists in 1905 and 1910 on behalf of the Government, was any serious or persistent research carried out. The Mining Law of 1886, amended in 1901, was in 1906 replaced by a new and relatively modernized code; and leases or licences under this were obtained in various areas by Ottoman subjects, usually with the intention of re-sale to credulous foreigners.
The Standard Oil Company of New York (since 19II an independent fragment of the now dismembered Standard Oil) accepted such licences for lands in northern Anatolia and in Palestine. To the former area the Company dispatched geologists in 1914, but was forced by the war to withdraw them. In Palestine the decision was reached to drill near Kurnub, south of Beersheba. A road and buildings were constructed, lorries imported, and drilling equipment was ordered from America; but this, when war broke out, was unloaded at Alexandria, and the enterprise was abandoned for five years.
A Syria Exploration Company, registered in London in 1912, held licences in Syria and conducted some shallow drilling there; its intention was to interest larger concerns and sell its rights to these while retaining an interest. Jaffa Oilfields, an offshoot of Eastern Petroleum (p. 24), took up a lease of seven plots west of the Dead Sea. The Consolidated Oilfields of Syria, registered in 1913, was short-lived and failed to develop the bituminous property which it was founded to exploit. Leases for the seepages in Van vilayet were granted by the Turkish Government, but failed to interest foreign capital and lapsed. A British Ottoman Oil Syndicate acquired, or hoped for, rights in the Boyabat seepage area; but no more resulted from its efforts than from those of Anglo-Ottoman Oilfields Limited, which had been registered two years earlier to acquire unspecified rights, nor from those of the
OIL IN THE MIDDLE EAST
Bagdad-Bassrah Concession Limited, registered with similar objectives. Of all these enterprises and of others now forgotten, the history was one of optimistic foreigners with or without capital, of hopeful and hungry local intermediaries, suspicious but venal Turkish officials, intrigue in high places, valueless maps and doubtfully valid documents, and a complete ignorance of geology and of the elements of petroleum development. No oil of commercial importance was produced, none located.
The island of Cyprus was in part explored for oil by a Cyprus Oil Trust which, registered in 1910, began to carry out some operations of research.
Of serious development in Arabia there could be little likelihood.
Only in connexion with the west coast of the peninsula, where the Turkish overlordship clashed with the actuality of Arab rule, was some interest shown among the syndicates and licence brokers of Istanbul. At Salif, in the 'Asir province, the salt deposits attracted the interest of Europeans, and middlemen were ready with offers of licences for the northern Hijaz; the Turkish Petroleum Company itself (p. 30) had hopes in 1913 of a concession for this region or for the whole Hijaz, though the lack of security was recognized .
. Such a concession would replace or incorporate rights already granted (it was claimed) by Turkish ministers which had been acquired by Shell and which, under the agreement that bound it as a Turkish Petroleum shareholder, offered them to the latter Company in 1914. Negotiations for ratification were in hand when war broke out, and the validity of the rights remained dubious. A concession obtained by the Eastern Petroleum Company (p. 24) from the Turks, covering the Farsan archipelago, was transferred in 1912 to a company formed to develop it, the Farsan Islands Oil Company, and a geologist was sent to examine the islands.
In the Persian Gulf the threat of the Baghdad Railway, with all it could involve in disturbance of Great Britain's position on those coasts, caused the Government of India to arrange with the ruling shaikhs that development of their oil, should it exist, was to be entrusted to subjects of no Power other than Great Britain. Such an undertaking was given in October 1913 by the Shaikh of Kuwait, whom the Turks claimed as a subject while admitting his de facto independence and his British alliance; and in May I914, in similar terms, by the ruler of Bahrain. The agreements current between the British Government and the shaikhs of the Trucial Coast
BEFORE THE FIRST WORLD WAR 27
stipulated that these also should enter into no relations with other Powers. A similar provision appeared in the agreement between Great Britain and the Sultan of Oman, who could count on British support as long as he parted with no portion of his kingdom to strangers and conformed in his foreign relations with British policy. In Qatar Turkish troops remained until late in 19I4; but, although the agreement with Britain, which the Shaikh had accepted in. earlier days on lines similar to those of the Trucial shaikhs, had been allowed to lapse when the Turks occupied the peninsula in 1872, the shaikhdom equally formed part of the region in which Great Britain claimed a special position. The al-Hasa province of Arabia was in 19I3 occupied by 'Abdul 'Aziz ibn Sa'ud, ruler of Najd since 1901, and the Turks were expelled. No undertaking with specific reference to oil was asked by His Majesty's Government from the Sa'udi ruler; but in the treaty which he concluded with the British in 19I5-a treaty superseded and replaced long before oil was discovered in Arabia-he agreed in general terms to grant concessions to foreign subjects only with British concurrence.
V. TURKISH PETROLEUM COMPANY
The interest of the period from 1900 to I9I4 in the territories west of Persia lies less in field operations than in the course of competitive claims and negotiations, on high levels, at the Turkish capital. The Ottoman Railway Company of Anatolia, which was controlled by the Deutsche Bank, retained in 1900 its claim to priority as a grantee of oil rights on the strength of the promises made to it in 1888; and to this was added, after signature of the Baghdad Railway Convention of March 1903, definite, though not exclusive rights, over a 20-kilometre strip on each side of the railway lines which the Company was now to construct through Anatolia to the head of the Persian Gulf. The Sultan by a new decree in December 1903 confirmed that of April 1890 as to his personal ownership of oil properties; and in July 1904 a specific option was granted by the Ministry of the Privy Purse to the Anatolian Railway (which transferred it to the Deutsche Bank) for one year's exploration for oil in the Baghdad and Mosul vilayets; if oil were found, a forty-year concession would be granted by Royal Decree, with division of the profits between concessionaire and Privy Purse in proportions to be decided later. An imposing
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exploration and geological party visited 'Iraq and compiled a report in favourable terms: but for whatever reason-probably lacks of funds-the option was not exercised. The Ministry declared it thereafter non-effective; the Germans demanded £20,000 for exploration expenses, which was refused, and maintained their claim to the option. It was with difficulty renewed annually until 1907, in which year its lapse was officially pronounced. This, however, was never accepted by the Company.
But the Germans were not alone in their interest in Turkish oil.
The increasingly close relations of Shell and Royal Dutch, which led to the coalescence of the two groups in 1907, and the interest of both in discovering new oil-sources, placed at least one rival candidate in the field-the Istanbul office of Samuel Brothers and visiting representatives of Shell's London headquarters. Another applicant for Ottoman oil had already appeared; D'Arcy, after obtaining his Persian Concession in 1901, sent his representative, Marriot, to Istanbul with instructions to obtain an oil agreement for the Baghdad and Mosul vilayets. After spending eighteen months and some thousands of pounds in vain, Marriot was replaced in 1903 by H. E. Nichols." The latter within a few months, and not without cost, claimed to have obtained a letter from Government conveying the promise of a concession in favour of his Ottoman Petroleum Syndicate, formed for the purpose. But normal Turkish procrastination and the force of German opposition prevented fulfilment of the promise. and the German option still, as they claimed, held the field. Yet another candidate was Rear-Admiral Colby Chester, who, sponsored by the New York Chamber of Commerce and aided by favourable contacts in Turkey made during service there ten years earlier, returned to Istanbul in January 1908 and was offered, in terms convincing to this too credulous negotiator, a variety of concessions for works, railways, harbours, minerals, and oil development in all parts of Turkey.
The military coup d'etat and revolution of July 1908 and the reintroduction, after thirty years of suspension, of the Turkish Constitution involved the abandonment, or at least postponement, of all the negotiators' hopes and the re-submission of all offers. The oil properties of the Empire were re-transferred to the
1 Later Managing Director of the Turkish Petroleum Company and a Director of Anglo-Persian.
BEFORE THE FIRST WORLD WAR
Ministry of Finance by decree of September 1908, by which they ceased to belong to the Sultan or his Privy Purse; and this was confirmed in May 1909 by a further decree of the incoming Sultan, who succeeded 'Abdul Hamid on his deposition in April.
During the uneasy period between the first and second coups d'etat-July 1908 to March 1909-no progress in concessionairing was possible; but after the latter date the pressure and tempo increased. Chester again urged his claims, and a concession granting him oil, mineral, and railway rights on an imposing scale was drafted in the Ministry of Public Works in 1909 and was ready for presentation to Parliament on behalf of his OttomanAmerican Development Company in 191I. Other United States interests were represented by Dr. Bruce Glasgow, who spoke for the J. G. White Corporation and asked for rights similar to those of the Admiral. Nichols, who had come so near to success before, was active again in pressing the claims of the D' Arcy group, which was merged in 1909 in the newly-formed Anglo-Persian Oil Company. The Shell group, through Samuel Brothers, resumed their candidature, of which Nichols in 1910 became aware for the first time; and, associated with Shell, Gulbenkian remained keenly on the watch. The Anatolian Railway continued to claim its option for northern 'Iraq and to be refused by the Turkish Government.
A result of the success of the Young Turks, who professed liberal principles and now dominated the State, was a brief period of popularity for Great Britain-hailed as the liberal Power par excellence-and a corresponding brief eclipse of the all-influential Germans, whom the deposed tyrant had favoured. It led to the formation in 1910, by initiative of the British Government, and with British capital, of a National Bank of Turkey with Sir H. Babington-Smith (a British civil servant) as Chairman and Lord Revelstoke, Hugo Baring, Sir E. Cassell, and C. S. Gulbenkian as directors. The efforts of the last-named were now devoted to persuading the Bank to interest itself in Turkish oil development, and to reconciling British and German interests in that field, so that the threatened deadlock could be circumvented. Before the end of 1910 contact had been established and a measure of agreement reached, between the N ational Bank and the Deutsche Bank. It took visible form in the first days of 19II by the registration in London of African and Eastern Concessions Limited, a
OIL IN THE MIDDLE EAST
company intended for oil operation throughout the Ottoman Empire. Babington-Smith became its Chairman. The Deutsche Bank, in return for its valueless options and outdated priorities, was given 20,000 shares free, the National Bank took and paid for 28,000, Gulbenkian retained 12,000 for himself and passed 20,000, in accordance with his prior agreement with Deterding, to the Royal Dutch. Shell group. The capital was £80,000.
The entry of Shell into this organization and its association with British banking on the one hand and with German interests on the other represented the result of long efforts by Gulbenkian to produce this juxtaposition. He himself could pass his shares to others if the obligations became too onerous; and the National Bank had no intention of remaining other than as a spectator in the oil business. The Company's first directors were Deterding and Frederick Lane for Shell (more properly, Anglo-Saxon), Dr. Kliemke for the Deutsche Bank, Baring, F. E. Whittall, and Babington-Smith for the National Bank, and Gulbenkian for himself. The name of African and Eastern was changed to that of Turkish Petroleum Company in 1912. The Company proceeded to apply for a number of local licences and concessions in various parts of Turkey, and revealed in the process the lack of real cordiality between the Shell and German elements: but the major objective must be a comprehensive concession for the favoured vilayets of Mosul and Baghdad. Meanwhile the T.P.C. shareholders addressed the Company in agreed terms, to the effect that they would not interest themselves in the production of oil in the Turkish Empire in Europe or Asia otherwise than in association with their T.P.C. colleagues: the first occurrence of the selfdenying rule to be consecrated sixteen years later as the Red Line Agreement.
Admiral Chester ceased after 19II, to his indignation, to be a serious candidate. The Turkish Parliament in 1910 and 19II would have nothing to do with his draft concessions, in spite of some United States diplomatic intervention on his behalf. He lacked financial support and his claims clashed too obviously with those of the Baghdad Railway and other European interests. The Anglo-Persian, on the other hand, was formidable by reason of its conspicuous success in Persia, where it came in 1913 for the second time within an ace of success, which seemed to be prevented only by German intervention. The Company, whose reappearance in
BEFORE THE FIRST WORLD WAR 31
the field alarmed the T.P.C. constituents, was known to enjoy the favour of the British Government; and in I9I3 both the National Bank and Gulbenkian received summonses from the Foreign Office that their shares should be made available for re-allotment. The intrusion of Anglo-Persian was, in fact, unwelcome to Deterding, though not unacceptable to the Germans as providing a broader basis for Anglo-German co-operation.
It was, indeed, by now in the clear interests of both Great Britain and Germany and of Turkey itself that the rival claims of the Anglo-German T.P.C. and the all-British A.P.O.C. should be so reconciled as to make practical progress feasible. Such reconciliation, which inter-Company conversations had failed to achieve, was effected finally at a high Government level. A Foreign Office meeting in March 1914 produced an agreement satisfactory to most (though resented by Gulbenkian as slighting his claims and position) and bearing the signatures of the companies and governments involved. The Anglo-Persian would cease to act independently and would take half the share-capital (now to be raised to £ 160,000 ) in the Turkish Petroleum Company, leaving the Deutsche Bank and Anglo-Saxon £40,000 each. The shareholding of the National Bank was to disappear and a 5 per cent. interest for Gulbenkian was to be provided in equal parts from the shares of AngloPersian and Anglo-Saxon. All shareholders reaffirmed the pledge not to interest themselves in oil development in the Turkish Empire otherwise than in association with the T.P.C.
The British and German Ambassadors could now confidently approach the Grand Vizier for the grant of an equitable concession, capable at long last of securing practical development of Turkish oil; the opportunity was indeed the more suitable as many Anglo-Turkish and Turco-German questions were simultaneously under discussion in government. circles. Outstanding Anglo-German issues were settled by the never-ratified GreyLichnowsky Agreement of 15 January 1914; and a demarche of the two ambassadors in Istanbul was met by a letter of the Grand Vizier, Sa'id Halim Pasha, dated 28 June I9I4 and addressed to them both. It stated that the Ministry of Finance agreed to lease the petroleum deposits 'discovered or to be discovered' in the vilayets of Baghdad and Mosul to the Turkish Petroleum Company and reserved to itself the right to decide later both its own share of the proceeds and the general terms of the concession. The
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Company was to indemnify any third party's interest In the petroleum deposits concerned.
This letter, less authoritative than a legally sanctioned concession, was yet a formal and solemn promise given by the highest of all Turkish authorities and one whose fulfilment was, no doubt, prevented only by the outbreak of War five weeks afterwards. -Ten years later it was to form the basis of the Turkish Petroleum Company's approach to the Government of 'Iraq, as the successor state in the two vilayets.
Meanwhile the Company sought to elucidate whatever problems of compensation to third parties it would be asked to face, and to move towards the drafting of a concession. But time was denied; little progress was made, the European War broke out on 4 August and Turkey and Great Britain were at war from 5 November 1915 for the next five years. It was ordained that neither Germans nor Turks were, after all, to have any part in the development of 'Iraqi oil.
THE FIRST WORLD WAR AND AFTER
1. THE WAR YEARS
THE transformation .of the Middle East into a theatre of war created during the five years from 1914 to 1919-and in 'Iraq and Turkey for longer=-conditions of unsafety, disturbance, and preoccupation wholly inimical tv industrial development. Persia was the scene of provocative German intrigue, of tribal uprising, of military invasion, and of almost total governmental impotence, and the years from 1919 to 1924 continued to witness gross maladministration and social confusion. Egypt was a major war base, its economy and manpower wholly devoted for five years to war purposes, and thereafter to political struggle not unaccompanied by violence. Every Middle Eastern sea during the war years was unsafe, convoys were decimated, and supplies interrupted. The Levant territories were afflicted by famine and harsh political suppression, followed by invasion and the clash of arms; and the post-war settlement of this region into four Mandated Territories was not quickly or easily accomplished. 'Iraq was the scene of a major campaign lasting from 1914 to the Armistice, which was followed eighteen months later by the outbreak of disorder over much of the territory; in the three years, however, which followed the establishment of an 'Iraq Government in October 1920, great progress was made towards a more permanent and encouraging regime. Turkey itself, with its every effort and resource strained for the prosecution of multi-frontal war, could give no thought to its mineral resources; and the Armistice of November 1918 was to be followed in this distracted but still vigorous country by a national uprising, a victory over invaders, and a total change of government and regime. In Arabia the possibility of oil exploitation was unanimously ignored during these years, when European enterprise and capital had far different preoccupations.
The part played by petroleum in the prosecution of the war was admitted at the time by every government and public, and was nowhere more apparent than in the Middle East. In civilian life
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the industry was placed in the conspicuous situation which it has held, increasingly, ever since, not least through the greatly accelerated development of motor transport and aviation and of the use of fuel oil in industry and at sea.
Three other effects of the war, or movements which coincided with it, were of profound significance. The first was the establishment of a British oil industry on a scale with which even the vast industry in America must seriously reckon. The second was the keen awareness of European Powers, notably France, of their need to secure oil supplies of their own, while the United States, alarmed at the foretold exhaustion of their own resources, determined not to be left behind with diminishing reserves and an increasing offtake. Finally, the new political structure in the Middle East, the Mandate system and the great increase of Western acquaintance with this region seemed to offer a new and yet unexplored oil world to the enterprise of the West .
. rr. THE WAR IN PERSIA
By the autumn of 19I4 the Anglo-Persian was producing and exporting petroleum products from Abadan at a rate of 25,000 tons a month, and formed an imperial and military asset of serious importance. If, therefore, the landing of British forces on the Shatt aI-'Arab in November 19I4 was the first move of an expedition whose object was primarily the defence of British political interests in the Persian Gulf, its second but no less real purpose was the defence of the Persian oil supplies. It was, indeed, evident that this supply would be an immediate Turkish objective, as was soon clear from their early requisition of the Company's oil stocks in Basra and Baghdad and their support of both Turkish and German agents penetrating into Khuzistan on trouble-creating missions. Nor were these unsuccessful; British control of Basra and Qurna was easily secured, but it could not prevent tribesmen from obeying the emissaries of the Turks and cutting the main oil pipeline between Fields and Ahwaz early in February 19I5. The Bakhtiari and Shaikh Khaz'al himself remained steadfastly loyal to their undertakings, but the advance of a Turkish force, unhindered by the Persian Government, created a situation upon whose redressment must depend the continuation of all operations; and this required the dispatch of a British force to Ahwaz, the energetic rounding up of enemy agents, and finally the dispatch of greater
THE FIRST WORLD WAR AND AFTER 35
forces which conducted successful operations of some weeks' duration, Thereafter the Company's area was not again disturbed, and the throughput of the pipeline was resumed in the summer of I9I5, after some three months' interruption. British troops remained at Ahwaz throughout the war.
In other respects the operations of Anglo-Persian, encouraged as they were by the paramount contribution they could make to the British forces, were hampered by many wartime embarrassments. British staff were eager to serve in the armed forces elsewhere; communications were slow, tankers diverted or sunk by enemy action; supplies and skilled personnel were for five years difficult or impossible to obtain; military requisitions (including that of the Company's Karun barge fleet) were inconvenient or disastrous. Nevertheless, a great and systematic enlargement of the Company's operations took place between 1915 and 1919. Drilling was continued in Maidan-i-Naftun (still so called), while exploration for other fields went on. Improvements and extensions were made in the engineering, industrial, and administrative arrangements throughout Fields; road and bridge building began seriously in 19I8; the use of mechanical transport grew rapidly and reduced the time required for the journey from Abadan to Fields from five days to eight hours. Increased use was made of electric power throughout Fields. The pipeline capacity to Abadan was more than doubled and by the end of the war stood at 3 million tiy. At Abadan refinery the construction of new units kept pace with pipeline increases, as these came progressively into operation; its capacity, 120,000 tons a year in 1913, was in 1918 over a million. Connected installations and services of all kinds expanded correspondingly, including extended wharves and jetties.
Production from the Persian fields grew from 273,000 tons in 1914 to comparable figures of 376,000, 449,000, 644,000, and 897,000 tons in the four succeeding years, to I,I06,000 in 1919, and to 1,385,000 in 1920. The staff and labour force of Persians (the vast majority), Indians, and British increased with the scale of work. Export from Abadan was carried increasingly in the fleet of the British Tanker Company (p. 22). As early as 1919, it is interesting to notice, spokesmen of the Company prophetically indicated the desirability, sooner or later, of a pipeline across Arabia to the Mediterranean. The British Government's investment in Anglo-Persian already declared itself as highly profitable,
36 OIL IN THE MIDDLE EAST
and seemed to be unaccompanied by the drawbacks prophesied by its critics; the profits of the concern, realized by its ever-increasing operations of refining, distribution, and sales outside Persia, rose annually after 19I5.
To Persia, and more immediately to the public of Khuzistan, the Company's activity brought an infusion of wealth and an example of progress without parallel in the country's history; nor was this accompanied, as far as appeared, by any threat to local interests, governmental or private. To the wages paid, the stores and services purchased, and the contracts allotted among the public were to be added the more diffused benefits of higher local purchasing power, the opportunity to acquire higher skill, the example and attraction of the higher living standards and social services offered by the Company. The royalties and share-interest paid to the Persian Treasury up to April 19I9 amounted to £1,325,000 and for the year 1919-20 were £470,000: a major contribution to the scanty Persian revenues of that period.
III. PERSIA AFTER THE WAR
The end of the war in November 19r8 permitted the AngloPersian not only to finish works in hand but also to inaugurate a period of ambitious development. Local conditions were unaffected by the miseries of the distant capital, and the tragic disorders of 'Iraq in I920 had no echo in Khuzistan. Much was done to improve conditions of work for the local labour force, which exceeded 20,000 in 1922; a strike at Abadan in I922 affected not Persian but imported Indian workers, some 3,000 strong, and was settled firmly by their repatriation. More attention could now be paid to the training of Persian workers; a beginning was made with instruction in many forms, and efforts were made, in spite of governmental apathy, to secure the establishment of technical colleges at Isfahan and elsewhere; the benefit to Persia and to the Company of the widest use of skilled Persians in its works was obvious. In the Company's administration, of which the highest authority in Persia was the head of the Strick Scott Managing Agency at Muhammara, the tendency from 19I8 onwards was for the originally separate commands-fields at Masjid-i-Sulaiman, pipeline at Ahwaz, refinery at Abadan, geological at Muhammara+to coalesce; the conclusion of this process was the appointment in 1924 of J. A. Jameson as General Manager (Technical), with
THE FIRST WORLD WAR AND AFTER 37
authority over all technical branches and operations. The GeneralManagership of Strick Scott, which became that of Anglo-Persian when in 1924 the contract for the Managing Agency was not renewed, was held from 1913 until 1920 by C. A. Walpole, with T. L. Jacks 'acting' at intervals. In May 192I it devolved jointly upon the latter and Sir Arnold Wilson, who had been Vice-Consul at Muhammara fromI907 till 1913 and afterwards Acting Civil Commissioner at Baghdad. The transfer of Wilson to London in I924, as General Manager of the D'Arcy Exploration Company, left the management in Persia in the combined hands of Jacks and Jameson.
The steady exploration and drilling at Maidan-i-Naftun continued, with the improvement and stabilization of all services and amenities. Drilling tests were carried out on promising structures in other parts of the concession area: at Qishm Island, at Deh Luran on the 'Iraq border, and elsewhere in the vast and desolate countryside; but success was for ten years denied to all these effort and production remained concentrated at the original location. It amounted to 1'1 million tons in 1919 and to 1'38, 1'74, and 2'32 millions respectively in 1920, 192I, and 1922.
Pipeline development continued, with the construction of a 12- inch line in 1921-2 and improvements, both mechanical and domestic, at pumping-stations. At Abadan refinery the works projected during the war were completed, though not without delays due to uncontrollable reasons. By 1922 refinery throughput capacity approached 3 million t/y.,
The Company's increased profits permitted the payment of substantial annual sums in royalty and as dividends to the Persian Treasury; they amounted to £585,000 for the year 1920-1, and to £593,000 a year later. In these circumstances, a lively interest on the part of the Persian Government might have been expected, but in fact little was shown; almost no Persian in high places acquainted himself with the realities of the industry, and the policy of Government varied from mere uncritical acceptance to irritating pinpricks. Specific differences between it and the Company became explicit after the war. The interruption in 1915 of public security, which under the 1901 Concession the Persian Government was bound to maintain, led to the first of these. The Company claimed £500,000 for its loss sustained through the disorders of February to May 1915. The Government, disclaiming
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all responsibility, advanced counter-claims for damage done by Turkish troops in Persia: for a share of profits from the operations of the First Exploitation Company (which sold its oil at cost price to the Anglo-Persian) and from those of the British Tanker Company: and on various other accounts. Conversations in Teheran and London failed to resolve these questions, and in midI920 the Financial Adviser to the Persian Government, S. Armitage-Smith, was instructed by his ministers to negotiate a settlement. The resulting arrangement, concluded on 22 December I920, dealt successfully with the question of compensation, settled the procedure for calculating future royalty payments, prescribed a lump-sum payment of £X million by the Company in respect of all outstanding claims, and provided for the scrutiny of the Company's royalty calculations by chartered accountants i? London to be named by the Persian Government. Unclouded relations between Company and Government were then resumed, amid general expressions of cordiality. But acceptance of the £ I million and, subsequently, of royalties calculated on the agreed basis did not prevent the Teheran authorities eight years later from alleging that the Armitage-Smith Agreement was and had always been invalid.
Another source of disagreement was of a different nature. The long-standing interest of Russia in northern Persia had become more explicit since the entry of Russian troops into the Caspian provinces during the war. It was marked in I9I6 by the grant by the Persian ministers, without parliamentary ratification, of an oil concession covering the five provinces to a Georgian, A. M. Khostharia. He formed the Russo-Persian Naphtha Company, engaged geologists, and chartered a steamer; but the Russian Revolution halted his efforts, and the Persian Government showed early signs of repudiating the grant. Khostharia, thereupon, sold his rights to the Anglo-Persian, which, with a strange optimism, was willing to pay him £100,000, followed later by a greater sum; and North Persian Oils Limited was registered in May I920, with a capital of £3 million and a board of Anglo-Persian directors, to operate the concession. The views of Bolshevik Russia on this development could not be doubtful; and the Perso-Russian Treaty of 26 February 1921, whereby Russia renounced all claims to economic privileges in Persia, was treated by them and by the Persian Government as ending all claims by Khostharia or his
THE FIRST WORLD WAR AND AFTER 39
assignees. The protests of the Anglo-Persian were unavailing; no weight was given to their argument that Khostharia was not Russian but Georgian; and their last hope vanished when the Persians turned instead to an American company, the Standard Oil (New Jersey), and agreed in principle to grant it a concession. This action elicited indignant protests from both Russia and the Anglo-Persian; and to soften the blow and strengthen its position Standard Oil offered, without Persian authority, a half-share to the British company. The transaction was, however, rejected by the Persians, who, during the first weeks of 1922, persisted in refusing to countenance any British participation; and in June the Persian ministers offered a concession, for fifty years, to any all-American company which would conform to its stipulations. The share of the Government was to be 50 per cent. of all profits. Proposals were received from New Jersey and from the Sinclair Consolidated; but both offers were rejected in Teheran, where new terms were evolved and this time provisionally accepted by Sinclair. The abortive New Jersey concession was waved aside, and the way lay open for a concession for north Persia to the Sinclair group in return for an immediate loan of £10 million. A fifty-year Agreement, covering the northern provinces, was in fact signed in December 1923; but the project was doomedv ajter all, to frustration. The coincidence of the 'Teapot Dome' scandals, the suspicion of a private arrangement between Sinclair and New Jersey, and the loss of Sinclair's former acceptability to Russia, all combined with Persian suspicion and apathy to pass the year 1924- without progress, and in 1925 Sinclair withdrew.
IV. EGYPT, 1914--23
The oil industry in Egypt was, in 1914-, still tentative and unprosperous. The country's oil-producing capacity, as so far discovered, was small. The industry, from the outbreak of war, was faced by war-time difficulties of man-power and supply, in addition to world-wide shortages of materials and transport delays. But, within these enforced limits, it solved its problems with tenacity and well earned the thanks which the Egyptian Government later expressed. Even so, it had barely begun by I919 to show a meagre profit.
Gemsa during these. years produced a mere tenth part of the Egyptian output; the bulk was supplied by Hurghada, where
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Anglo-Egyptian's operations were now concentrated; but even here output was sustained only by the drilling of many wells, often of meagre and disappointing output. The realized production of crude for the years 1914-19 amounted to no more than 103,000, 34,000, 55,000, 135,000,272,000 and 232,000 tons. The quality of the oil and the high water admixture in it, which constantly increased, led in 1917 to the erection of a dehydration plant at Hurghada for its treatment before dispatch to Suez. In all operations, the difficulty of obtaining supplies was serious; many supply ships were sunk by the enemy. Nevertheless, the Hurghada field stabilized into a settled and not uncomfortable community; amenities increased, motor vehicles appeared, relations with the British military authorities and the Government of Egypt were excellent. Secure employment was found for an Egyptian labour force of 1,200 men. The Suez refinery was kept supplied in part by shipments of Hurghada crude and in part by the imported crude of other companies.
The first years after the war found the industry still hopeful of the better times which fresh sources of oil, if discovered, could bring; but this was not for long years to be achieved, and meanwhile the best use was made of existing resources. Production from 1920 to 1924 inclusive amounted to 156,000, 181,000, 169,000, 150,000 and 160,000 tons; and the improvement of installations and amenities continued with the easier availability of supplies and staff after 1919.
The new code of licensing and leasing procedure issued by the Government in 1921 encouraged in some measure the exploration of new areas, though to little avail; the only success was the discovery in 1921, by operations of the Egyptian Government itself, of a field at abu Durba on the west coast of Sinai. The field, of small output and low-quality oil, was in 1923 handed for exploitation, under a thirty-year lease, to a local company, the Egyptian Oil Syndicate. After producing a total of some 5,000 tons of crude from three producing wells (out of fifteen-drilled) it appeared incapable of further commercial production and was, for the time, abandoned.
Another State enterprise was the erection at Suez. in 1922 of a small refinery, which was intended to supply the needs of government departments by processing the royalty oil received in kind from Anglo-Egyptian. This self-contained refinery, at which two
THE FIRST WORLD WAR AND AFTER 41
Europeans and 300 Egyptians were employed, achieved an output of some 100 tons a day, including road asphalt.
Exploration for other oil-sources in Egypt by syndicates and companies formed for this purpose was resumed from 1919 onwards, after a four-year interruption. A 'Q;S.P. Syndicate' obtained Government licences and passed them to the British Burmah Petroleum Company, to be later acquired by the British Sinai Petroleum Company. The last-named of these carried out test drilling, but its operations were abandoned as unsuccessful in 1923. Egyptian Central Oilfields Limited held licences over two islands off the Egyptian coast and drilled on these, only to abandon hope five years later. The Suez Oil Company (p. 24) lasted till 1928, but was unrewarded to the last. The Anglo-Persian itself took licences for considerable areas of Sinai, drilled a well, and for a time was hopeful of an oil strike: but it was not to be. The Eastern Petroleum and Finance Company, registered in June 1921, was responsible for the drilling of two wells on the Sinai coast; both were dry. The prospects of Affiliated Oilfields, which through a subsidiary drilled at Tawila Island, appeared bright in 1928, but like the rest were to be disappointed. Oilfields of Egypt Limited acquired licences from the African Prospecting Syndicate for areas on the coast-Ras Bahar and Ras Dhib-and for the two islands of North and South Gaisum; serious drilling was carried out and three holes were taken to a depth of nearly 3,000 feet: but no favourable signs resulted, and the operation was abandoned. Nor were these the only enterprises in which foreign initiative and capital sought, with monotonous lack of recompense, to find oil in Egypt.
V. LEVANT, TURKEY, ARABIA, AND 'IRAQ, 1914-23
During this period of political reorientation, in which these territories began a new existence as national states, the preoccupations of the time permitted little serious progress towards oil research or development. Most of the syndicates formed before the autumn of I914 disappeared from view; and while the future of the territories (including that of their oil content) was a preoccupation of European statesmanship, local initiative had little to show. In southern Syria occasional drilling was carried out by German personnel of the Turkish Army; in Turkey some tunnelling at seepages was contrived by Russian invading troops in 1915;
OIL IN THE MIDDLE EAST
but elsewhere the war period showed no activity in the production of petroleum.
But the years following witnessed a revival. The rights obtained before the war by Sulaiman Bey Nasif and the Syria Exploration Company (p. 25) in Transjordan and on the Dead Sea had already interested the D'Arcy Exploration Company (p. 22); the latter secured options and, under the Turkish Petroleum rules, offered them to its fellow shareholders. But the T.P.C.'s position was not yet effectively that of an operating company, and the licences were allowed to lapse after a visit had been paid to Palestine in 1922 by Anglo-Persian geologists on behalf of T.P.C. A 'concession' granted in 1920 by seven optimistic shaikhs of Transjordan on behalf of a self-styled National Government of Moab, shortly before the establishment of the Amirate there, was not taken seriously by the British Government. The concession was passed, nevertheless, by its proprietor to the Shell Group, who correctly offered it to the T.P.C.; but the Moab Government ceased to exist-if it had ever existed-and no more was heard of the concession. The licences which Standard Oil of New York had obtained before the war for the Kurnub area in southern Palestine were claimed as still valid after 1918, and a representative of the Company stayed for two years in Palestine; but he withdrew frustrated in 192I. The Middle East Development Company, resistered in London in 1919 as an Anglo-French enterprise to develop petroleum in Syria and Arabia, included the interests of Lord Inchcape ; no field work, however, resulted from its efforts. A small London syndicate formed in 1920, the Eastern and General, was unnoticed at the time, but was destined later to play its part in great events.
In Turkey, for six years following the Armistice, the swift changes and uncertainties of the times and the antiquated mining law still in force precluded serious enterprise. At the first sight of a European or American geologist (such as the representative of the Omnium Company of Paris who toured Turkey in 192I-2) forgotten 'rights' were unearthed by local optimists and ancient permits deciphered; some of these-at Kighi, at Van, at Erzerum, and elsewhere-were offered to the Turkish Petroleum Company, but none was followed up. It was not easy to take seriously the efforts of Fuad Pasha to make attractive his 'exclusive rights' to the Van area, nor those of the Royal Family of Egypt to most of
THE FIRST WORLD WAR AND AFTER 43
the rest of Turkey; nor did the Societe Turque de Produits Petroliferes, a Turkish and Belgian-French concern, achieve serious results. An enterprise planned in London by a group including Lord Cowdray, to obtain concessions in Turkey, carne to nothing; nor was there the stuff of reality in the whispered promises of 'concessions' with which Turkish statesmen sought to gain interest at Lausanne.
In 'Iraq the seepages of Kirkuk and Tuz continued to be used as ever during the war. Those of Qaiyara were developed on a more ambitious scale by the Germans, who carried out shallow drilling, built galleries, removed 'refined products' by tank-lorry-and were heard even to speak of a pipeline to the Mediterranean! They were scarcely less interested in the Zakho seepages, where drilling and tunnelling were also carried out. The military use of the locally-distilled products of Qaiyara and Tuz was continued after the British occupation, and visits to 'Iraq were paid during and after the war by geologists whose employers were not unmindful of Turkish Petroleum's vizirial promise of 1914.
More significant for immediate results was the enterprise in 'Iraq of the Anglo-Persian, whose 190I Concession in Persia covered also the Transferred Territories in 'Iraq, since these, with a total area of some 700 square miles, had. been 'transferred'. from Persia to Turkey by decision of the International Frontier Commission of I9I3-14.1 An experimental well in a smallish anticline astride the frontier, at Naftkhana, was 'spudded in' in 1919 and, after considerable delays, subsequent drilling struck a substantial oil-show in I923~the first glimpse of potential 'commercial production' in 'Iraq. The Naftkhana field,· whose trans-frontier portion in Persia is Naft-i-Shah, was later revealed as consisting of a closed limestone structure some 8 miles long by I t wide; the reservoirrock, 250 feet thick and its crest lying some 2,200 feet below the surface, is locally known as the 'Kalhur limestone' and forms a nearly symmetrical dome overlaid by unconformable later deposits. The development of this oilfield, both in 'Iraq and Persia, belongs to later pages.
The 1 'urkish Petroleum Company could not but find its position full of delicacy after the war. The German shareholding had in
1 Turkey had undertaken to treat any territory that she might gain as a result of the Commission as being covered by the A.P.O.C. Concession; the 'transfer' was, therefore, one of lands whose oil-rights were already engaged.
44 OIL IN THE MIDDLE EAST
1915 been handed by the British Government to the Custodian of Enemy Property. The apprehension of the British shareholders in 1916 that the assignment of Mosul to the French sphere, under the Sykes-Picot Agreement, would be damaging to them had been met by a letter from the French Ambassador in London declaring that British oil rights in Mosul area would be unaffected. During the later years of the war the French Government (not without suggestions from Gulbenkian, then resident in Paris) hoped for transfer of the German share in the T.P.C. to a body representing French industry; and, after an exchange of letters in this sense took place between Lord Long and Henri Berenger, agreement was reached between M. Clemenceau and Mr. Lloyd George in December 1918 that the Mosul region should, after all, form part of British-controlled 'Iraq. This position became explicit when the decision was reached by the Principal Allied Powers that Great Britain should be awarded a Mandate for that territory.
The interests of both nations led them during 1919, accordingly, to put into final form the plan whereby France should succeed to the German T.P.C. shareholding, while itself in turn facilitating the passage of 'Mosul oil' (if any) across Syria to the Mediterranean. The Long-Berenger Agreement was developed on these lines and was ratified on 24 April 1920 in the form of the San Remo Oil Agreement," which left Anglo-Saxon with 22t per cent. of T.P.C. shares, Anglo-Persian with 47t, the French with 25, and Gulbenkian with 5.
The transfer of German shares to the French had been conditional in the mind of Deterding upon the formation of a French shareholding company in which Shell interests would predominate.
J The Agreement provided that the British Government should grant to the French Government or its nominees, at current market rates, 25 per cent. of the net output of crude oil which H.M.G. might acquire from the Mesopotamian oilfields, in the event of these being developed by government action; or in the event of this being done by a company the British Government should place at the disposal of the French a 25 per cent. share of such company. The company was to be under permanent British control, and, should subscriptions from the public be invited, native interests should be allowed to participate up to 20 per cent.; the French were to contribute up to 10 per cent. of such native participation. The British Government was to support arrangements by which the French might procure from Anglo-Persian supplies of oil, which might be piped from Persia to the Mediterranean through French Mandated Territory. In that event, the French agreed to the construction of two separate pipelines and railways from Mesopotamia or Persia through the French sphere to a port or ports on the eastern Mediterranean.
THE FIRST WORLD WAR AND AFTER 45
For this purpose a Societe Francaise pour l'Exploitation du Petrole was formed between Shell interests in France and the Union Parisienne; but with a change of government this Company was set aside and another formed in 1923 to be representative of purely French interests. This Company, the Compagnie Francaise des Petroles, whose principal initial duty was to hold the Turkish Petroleum shares, was organized by M. Ernest Mercier and assumed its final form in 1931; from which date onwards the French Government held 35 per cent. of the shares but, by a special arrangement, 40 per cent. of the voting power.
Interest in Mesopotamian affairs had meanwhile been stirred in another quarter, that of the United States. The Open-Door policy in dependent territories, normally favoured there, was now specifically reinforced by fears of the exhaustion of oil supplies in North America itself; and the phrase; which stood for the equality of all comers in Mandated territories, appealed equally to the United States Government and to major American oil companies, which had previously adventured little in the eastern hemisphere. Standard Oil (New Jersey) proposed in 1919, to send geologists to 'Iraq, but was discouraged by its Government; it was joined in 1921 in a similar application by other companies." with equal lack of success. Meanwhile a correspondence on Open-Door lines took place between the State Department and the Foreign Office, opened by a vigorous, but to some extent misinformed, letter by Ambassador Davis in May I920. Lord Curzon replied that the American share of world oil was so predominant, and America's own exclusiveness in the past so marked that the United States could well acquiesce in British companies benefiting from the Turkish promise of 19I4 which they held and which it was improper to ignore; in any case, the resources of 'Iraq would belong not to Britain but to the future state to be founded there. Subsequent letters between Bainbridge Colby and Lord Curzon prolonged the correspondence into 1921, but failed to render it conclusive.
It was, nevertheless, apparent on both sides of the Atlantic that some form of admission of American interests into Mesopotamian
1 The Texas Company, Mexican Petroleum Company, Gulf Corporation, Atlantic Refining Company, Sinclair Consolidated Oil Corporation, and Standard Oil of New York. These, like New Jersey itself, had responded to an invitation by Herbert Hoover to interest themselves in overseas oil sources.
OIL IN THE MIDDLE EAST
oil was desirable and must be arranged. The attitude of the T.P.C. shareholders to this was generally unfavourable, though Gulbenkian supported it and the major constituents were prepared to yield to governmental pressure. The question was discussed by Sir John Cadman during a visit to the United States in I92I, and in I922 further conversations felt their way towards American entry on a basis which should conform to the Open-Door principle. Provisional agreement on behalf of the American companies was reached in 1922 and provided for American interest to the extent of one quarter, more or less, of the Company's share capital. The Company itself was to take leases for a limited number of plots in 'Iraq, to allow other areas to be taken freely by others, to confine itself strictly to functions of production and refining, and not to compete for any leases in 'Iraq outside its own plots. In further talks in 1923 it was agreed that the American shareholding should come wholly or substantially from the Anglo-Persian block of 47! per cent., the latter to be compensated by an overriding royalty, ultimately fixed at 10 per cent., on all oil produced by Turkish Petroleum .. The incorporation of these conditions (other than the last mentioned) in the ultimate T.P.C. Concession of March 1925 and the effective entry of American oil companies as shareholders belong to later pages (p. 67). Agreement was, at the stage now reached, still imperfect, the American interest unofficial and provisional, and the dismay of Gulbenkian at the proposed lines of agreement (which restricted the area wherein he occupied a favourable position) still unappeased.
During and even after the earlier phases of this Anglo-American rapprochement there were disturbing influences at work. Admiral Chester, whose draft concession before the war had brought his Ottoman-American Development Company no valid rights, renewed his applications to the Turkish authorities after 19I8. He was persona grata in Turkish governing circles, and received at least some measure, it was said, of American support; and the Grand National Assembly, at loggerheads with the British Government over treaty-making, was glad in April 1923 to ratify the 'Chester Concession' in terms which bestowed on him the mineral rights over a twenty-four-mile strip athwart the railway which Ottoman-American was to build into the heart of northern 'Iraq. But it was not to be; the Lausanne Treaty was signed in July 1923 and Turkey was in no position to make grants in the Mosul
THE FIRST WORLD WAR AND AFTER 47
province. Ottoman-American, for its part, failed to carry out the first of its stipulated obligations; its 'concession' lapsed, and threats of legal action by the Admiral against the T.P.C. gradually died into silence.
By the end of I923, with a king on the throne of Baghdad and a treaty signed between His Majesty's Government and the 'Iraq Kingdom, the first stages could be taken towards the long-delayed development of 'Mosul Oil'.
OIL UNDER RIZA SHAH
I. BETWEEN THE WARS
MIDDLE Eastern oil production, still humble in 1920 and barely exceeding I per cent. of world output, increased tenfold in the following two decades to a rate of some 15 million t/y, or 5'5 per cent. of the world's production: a rate of progress unsensational if judged by achievements since 1945, but accompanied by the highly fruitful discovery of oilfields in Arabia and 'Iraq, which later years were to see brought into production. Even by 1939, however, the future importance of Middle Eastern oil was still largely unrealized.
The region as one of oil production had great advantages. The administrations, officials, and social services of the States were improving from the nineteen-twenties onwards: modern communications were coming into use: security, though imperfect, was far superior to that of an earlier generation. The local governments were, in general, eager to see their resources exploited, to the profit of their treasuries: and great foreign companies, financially and technically competent, and capable also of an enlightened attitude to a task of trusteeship, were willing to undertake such development in the well-judged belief that world demand for oil would continue regularly to increase," and to call for ever wider sources of supply. By far the greatest of the advantages of Middle Eastern oilfields was partly already manifest in Persia, partly awaited further demonstration in Arabia and 'Iraq: the extraordinary size of its oil-bearing structures, the vast scale of the reservoirs, and the productivity of single wens compared with the fields of North America or the Caribbean.t At the same time, the ownership of oil by the State and the elimination of vexatious competitive operation made possible 'unit development' of discovered struc-
1 World oil-production was 70,000 tons in 1860, 4 million in 1880, 20 million in 1900, 59 million in 1915, 94 million in 1920, 148 million in 1925, 278 million in 1939.
2 In 1947, for example, Persia was producing, from a few dozen wells, at the rate of 280,000 tons per year per well, and the average for the whole Middle East was 180,000 per year per well. The comparable figure for the United States, with its half-a-million wells, was 610 tons and for the Caribbean area 7,850 tons.
OIL UNDER RIZA SHAH
tures on the economic, balanced, and scientific lines best able to conserve the national wealth and to offer cheap and efficient production.
The period was one of great technical advance. In the search for oil structures, the geologist was better equipped, better instructed, more specialized than ever before; the geophysicist used with increasing mastery his gravity-meter, magnetometer, and seismic methods to discover the density and stratification of rocks deeply buried from view. Drilling itself, in which the rotary method usually though not universally displaced cable-tool equipment, was perfected in every part of its machinery and processes, and could attain greater depth, reliable well-head control, and almost complete straightness of the drilled hole. Oilfield science and the lore of reservoirs-the province of the Petroleum Engineer-advanced year by year. The installations of gas-separation and stabilization were improved; techniques were developed for re-injecting both unwanted products and pressure-creating gases into the structure, for recovering gasoline from 'wet' gas, for utilizing gas for industrial purposes, for dehydrating emulsified oil, and for sulphur recovery. Life in oilfields was transformed by the provision of abundant electric power, good water supplies, ranges of domestic as well as industrial buildings, modern amenities, full social services, and a wealth of transport and communication facilities. Every detail of pipelines, pumping installations, and tank-farms advanced in scale and efficiency. Refining, based on previous years of research, attained its modern forms and yielded products far ahead, in their diversity and quality, of those of the early days of the industry.
But, with all these natural and man-made advantages, the industry in the Middle East faced also its particular obstacles. If severe climates, roadless terrain, waterless sites, resourceless countrysides, and untrained labour forces could be supported or corrected (and indeed were not unusual features of oil country), the distance of the Middle Eastern fields from main centres of consumption was (and is) an adverse factor of serious weight. A distance of 6,500 miles to Great Britain from the head of the Persian Gulf, with Canal dues to be paid, gave Middle Eastern oil a passage to Europe 2,000 miles longer than from the Gulf of Mexico; and the shorter-but still 3,300-mile-journey from the eastern Mediterranean could be achieved only by the installation of highly
50 OIL IN THE MIDDLE EAST
expensive and vulnerable pipelines across the desert. This placed Persian, 'Iraqi, or Arabian oil at a clear disadvantage against American in the greatest of eastern-hemisphere markets.
The problems thus posed were economic or technical; others, of a political type, would prove less tractable, and these, still absent in the less evolved Arabian territories, appeared in Persia and the Fertile Crescent in the nineteen-twenties and nineteen-thirties to an extent which was already disquieting; they were to develop more fully after 1945. The underlying cause of the deep social and political unrest of the Middle East, which at the mid-century was all too obvious and seemed likely to persist, was connected with the painful and relatively sudden reorientation of these countries from the position of socially backward, industrially nonexistent, politically fettered territories into independent States subject to all the strains and demands of the divided, competitive, and exacting twentieth-century world, and with the heightened self-consciousness of late arrivals ill-equipped in unfamiliar surroundings. Although in the Arab countries in the early nineteentwenties a degree of European tutelage, by Mandate or treaty, partly restrained the cruder manifestations of local patriotism, it was inevitable that the emotional, unstable elements in the Middle Eastern character should prove difficult in dealings with the sober businessmen of the West, even when the charm, responsiveness, and humour of the best Arab and Persian society were well in evidence; and in their politics-which to a Middle Eastern eoolue cover the industrial sphere as they cover the whole of corporate life-the appeal to national or nationalist emotion was certain to be used habitually to excite an inflammable and unreflecting public. The benefits brought by a great foreign enterprise to the Treasury, the nation, and its own workers would be appreciated only by a small proportion of the public; and, even so, material benefits can never on any level compete with emotional appeals in the Middle East, where efficiency is not especially valued and the 'greatest happiness of the greatest number' is not always the prime objective of politicians.
The nationalism to which local publicists appeal contained (and contains) a specifically anti-foreign element in its emotional content: a phenomenon capable, indeed, of analysis and explanation, but not the less embarrassing to the resident foreigner. Its appeal was the normal stock-in-trade of every politician, and was used
OIL UNDER RIZA SHAH 51
at times on frankly competitive lines-the more anti-foreign, the greater the patriot! It was fed by a very human resentment at the mere presence in their midst of well-organized, well-established, rich, and thriving foreign enterprises, with wealth and standards too obviously in advance of anything indigenous: a resentment made up of amour propre, jealousy, and personal or corporate frustration. These feelings,. given all the historical and psychological elements in the Middle East from 1920 onwards, were likely to prevail in all but comparatively rare political circles, and bound gravely to embarrass the companies. whose own merits or achievements were powerless to check them.
Meanwhile, there could be little doubt about the method or agency to be adopted for Middle Eastern development. The countries concerned were, save for limited areas, scantily popu-
. lated. They contained wide areas of steppe country, barren hill tracts, and total desert. They were generally remote not only from the major markets, but also from main lines and means of communication. Resources were slight, skilled labour was rare, large-scale industry unknown. Their economies were in general primitive, concentrations of private wealth few (save in Egypt), poverty almost universal. In view of the minimum requirements of oil development in Middle East conditions, it was apparent that local private enterprise .could not imaginably be adequate to the task; and local Governments (save in Turkey) did not as such enter the field on any considerable scale.
If the use of foreign capital be accepted, for lack of alternative, as a necessary evil, it could, except in rare cases, scarcely operate otherwise than through the grant by state authorities of 'blanket concessions' to such foreign companies as applied with suitable offers. This method was, in fact, widely adopted; and to it, as later pages will show, almost the whole of Middle Eastern oil development was in fact due. The grants thus made by sovereign states to British, American, Anglo-American, or international groups between 1924 and I939, and covering for fifty-year or longer terms the whole or a great part of a country, carried conditions which were in every case the subject of long discussion and hard bargaining before the concession was bestowed; nor will it be found that these terms as agreed were in general over-indulgent in view of the risks taken and the tasks faced by the companies, nor that undue influences or pressures were brought to bear in
SZ OIL IN THE MIDDLE EAST
obtaining them. The subsequent attitudes and achievements of the concession-holding companies will sufficiently appear in later pages.
II. THE NINETEEN-TWENTIES IN PERSIA
In Persia the period of great expansion in the oil industry which followed the. first war, continued for ten years unchecked: or indeed for twenty, with the 1929-31 period of depression and the concession troubles of 1932-3 as a partial mid-way halt. And while the Anglo-Persian outside Persia built up its world-wide organization, upon which its prosperity wholly depended, it was served within Persia by an increasingly evolved, loyal, and adequate organization.
T. L. Jacks was appointed Resident Director of the Company, with headquarters at Teheran, in 1926, and so remained till 1934. At Abadan, J. A. Jameson held the General Managership until 1927, when he left Persia for a directorship of the Company in London. He was succeeded for ten years by E. H. O. Elkington, and the latter in 1937 by J. M. Pattinson. The General Fields Managers of the period were J. Wright 1924-6, M. C. Seamark 1927-30, C. R. Clark 1931-7, and H. W. Lane 1937-45. In London, Sir John Cadman who had joined the Company's board in 1921, became Chairman in 1927; Sir Charles Greenway, raised to the peerage. was appointed President of the Company.
The oilfield of Maidan-i-Naftun, renamed Masjid-i-Sulaiman in 1926, was already in full production as this period opens; but important additions were still to be made to its installations, technical equipment, facilities, and amenities. Its electric supply was secured by a new power-station at Tembi, its stores and workshops were developed, and a large range of industrial and domestic building completed. The hospital was enlarged; branch dispensaries were opened. A Company-built bazaar and shops erected by controlled private enterprise appeared. Roads feeding the area and within it were improved and bridges constructed. A light railway from Dar-i-Khazina to Fields was opened in 1924, the Karun barge fleet multiplied. Air services began to run, landing grounds were levelled, . and the variety and number of road vehicles increased. The water-supply from Godar Landar on the Karun was doubled by new pipelines, plant was erected for the recovery of gasoline from natural gas, and the 'dry'gas was
OiL UNDER RIZA SHAH 53
utilized for all industrial and domestic purposes of heating, lighting, and fuel throughout Fields. The possibility of re-injecting gas into the structure, as a means of re-pressuring, was kept under consideration but not adopted.
The 're-cycling' of liquid hydrocarbons, however, became a characteristic practice in Persia and, like the 'unit development' of structures and multi-stage gas separation, was a major technical contribution of Anglo-Persian. The practice began in 1929 with there-transfer, by pipeline from Abadan to Fields, of products for which, at the moment, there was no export demand. These, with the object of conserving them for later extraction, were re-injected into the structure through wells drilled into the highest or gas-cap portion and were thus re-absorbed into the pores and fissures of the limestone. The practice once established, economy demanded that the unwanted products should be separated at Fields; this was done by the erection there of a topping-plant of capacity of I million t/y, enabling the wanted products to be despatched to Abadan and the unwanted to be re-cycled.
Production from the Masjid-i-Sulaiman field amounted in 1923 to 2'9 million t/y and in the six years following to 3'7,4'3,4'5,4,8, 5'3, and 5~4 million, after which in 1930, and thereafter, the Haft Kel Field joined it in production (p. 54).
The exploration which led to the last-mentioned development was no new activity. On the eve of the first war test drilling was in progress at various points in the concession area, and it was resumed in 1922. Further trials at Qishm Island were, with disappointment, abandoned after three costly years, and equal failure resulted at more than a dozen other sites in southern and western Persia.' The search was recommenced in 1926 by the work of a number of geological and geophysical field parties, upon the basis of whose reports drilling locations were selected or the areas dismissed. These inquiries resulted in a great majority of disappointments, and emphasized once more both the exceptional difficulty of locating oilfields, when the reservoir structures were covered by unconformable and misleading deposits above them, and the falsity of the hopes which could at times be raised by surface seepages. The record was one of failure at nearly all the locations
1 During the whole period 1914-36 unsuccessful wells were drilled by the Company at Shahabad, Dalpari, Deh Luran, Zeloi, Pirgah, Gach Khalaj, Sar-iNaftak, Yamaha, Kundak, Ahwaz, Mamatain, Chillingar, Sulabadar, Kuh-iMund, and Qishm.
OIL IN THE MIDDLE EAST
examined; but the exceptions were such as to justify the whole of, and much more than, the great cost and effort involved. Even at locations later to be famous as centres of production the initial discoveries in the period 1926-30 were inconclusive. At Zeloi, in an area close to the later Lali field, early results were disappointing. White Oil Springs (later known as Naft Safid), in spite of its gas seepage and the light-coloured condensate found on the surface, was slow to reveal its buried stores; and at the remoter site of Gach Qaraghuli (later Gach Saran) the wells drilled in I929, before the great depression halted operations in every area, revealed oil but left it incompletely proved for six more years. At Agha jari, similarly, the proving of the field by further drilling was postponed till better times. At the small field of Naft-i-Shah, forming half of 'Iraq's Naftkhana field, a first well was drilled in 1927 and a second in 1928, but no production followed until six years later.
At Haft KeI, on the contrary, a field of the greatest, indeed almost unprecedented, richness was discovered in 1928. Marked by extensive seepages, it lies thirty-five miles south-south-east of Masjid-i-Sulaiman. The limestone reservoir, which forms an elongated dome, is overlaid with the usual uncomformable beds of the Middle and Lower Fars system and by a cap-rock of anhydrite. The productive Asmari limestone is 900 feet thick, the reservoir some seventeen miles long by three wide, and the oil of gravity 37 degrees A.P.I. Further wells were drilled from 1929 onwards, six producers being completed by 1930. Pipelines in that year were completed from Haft Kel to join the Masjid-i-Sulaiman-Abadan lines at Kut 'Abdullah. The field, 140 miles from Abadan, produced a million tons of oil in 1930 and greater quantities in each succeeding year. Thus augmented, the total production for Persia reached 5'9 million tons in 1930, fell to 5'7 in the slump year of 1931, and recovered to 6'4 million in 1932.
The throughput capacity of the main pipelines reached 17,000 tons a day, or over 6 million t/y, by 1930. The use of the Mulla Sani' pumping-station was discontinued, the installations at the others (Tembi, Kut 'Abdullah, Dorquain) were improved. Ahwaz, which was Pipeline Headquarters before I930, was at this period a main station for stores, workshops, river, and road transport, with a Company's hospital and large European community; but from the depression of 1930 onwards it was greatly reduced in scale.
At Abadan the record was consistently one of growing expansion
OIL UNDER RIZA SHAH
realized and of difficulties overcome: an increasing community to be housed, fed, and cared for with services and amenities of every kind: vaster tank-farms for crude oil and products: the installation of new plant and equipment on lines indicated by the increasing scale of throughput and by the improved processes which technological advance made possible and which the markets demanded. By 1930 refining capacity reached 13,000 tons a day, or nearly 5 million t/y. New crude-distillation units erected in 1929-30 were followed by thermal cracking plant, whose products could meet the demand for a greater proportion of gasoline, and this of higher octane-rating.
Development of Abadan as a port kept pace with increased tanker liftings, and loading facilities improved and multiplied. In 1925 agreement was reached with the Port of Basra for the dredging of the Fao Bar, which restricted the entry of shipping into the Shatt al- 'Arab, and a loan of £500,000 made by the Company to the port enabled the latter to begin operations with dredgers on the selected Rooka Channel. A year later the proportion of lightering at the bar could be reduced, and in 1928 was brought down to a negligible figure. The loan was repaid; and the dredged channel became a permanent boon to the traffic of Basra, Abadan, and Muhammara.
The policy of the Company towards its workers increasingly declared itself in these years as one of 'model employment' with the maximum of Persianization of its staff. Since of formal organization or unionization of labour there was at this period neither possibility nor demand, the attitude to the workers was of necessity paternalistic; the Company offered spontaneously such conditions as seemed to it suitable and generous. These were beyond question far superior to those offered by any Persian employer, and went far beyond any legal or contractual obligation; but the fact that they were bestowed by a foreign management, in which as yet no Persian played a responsible part, detracted from the value given them by their recipients. Nevertheless, alien as the Company must remain, the pride of Persian workers in its. service was apparent, their skill developed and was used, promotion to higher positions grew commoner, and the annual wastage due to workers' seasonal reversion to their own homes and herds became a less constant feature.
The administration of the Company's labour force, which by
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1931 exceeded 20,000 Persians, was carried out with close regard to careful recruiting, high physical standards, regular pay and holidays, and a code of detailed regulation both humane and reasonable. Employment officers became expert in handling grievances and promoting welfare; all were Persian-speaking. Many hundreds of houses were built for Persian workers, model bazaars were erected, shops were built or licensed, and in times of scarcity essential food supplies were offered at favourable prices. Medical services were comprehensive and included an all-embracing sanitary and preventive system such as Persia had never known. Dispensaries were ubiquitous, central hospitals with British doctors and nurses were established at Masjid-i-Sulaiman, Ahwaz, and Abadan, with specialist services available. Electric light and power were provided everywhere, fresh-water supplies were assured from rivers by pipeline and pump, bathing facilities were made available. The orderly layout of all premises and settlements, with their broad, well-kept roads, their gardens, clubs, and playing-fields, gave a healthy setting to the lives of workers. Generous help was given to Persian municipalities, at Abadan itself and at Ahwaz. At the former a populous city arose beside the Company's refinery areas, and its Persian authorities received the comprehensive support due to a township which the Company's enterprise alone had brought into existence.
The training of Persians for higher posts in the Company was encouraged equally by common sense, by economy, and by policy. From 1923 onwards increasing care was given to the education and training of workers and potential workers, in workshops and manual training centres and in a training school under European teachers. Schools for the workers' children were built and staffed, and help was given to government schools. All teaching was free, an English educationalist was brought to Persia to co-ordinate and advise, and plans were made to send Persians to the United Kingdom for higher studies. Every effort of policy, expenditure, and goodwill was forthcoming from the Company before 1932 towards improving the capacity of Persian staff and workers, with no limit to the level which lay open to them in the Company's system.
The impact of its operations on the public of Khuzistan was strong and favourable. It was the source of wealth and vitality, offered secure employment in good conditions, and afforded direct benefits in its medical services, communications, and schools,
OIL UNDER RIZA SHAH
with others less direct in the stabilization of society, the increased circulation of wealth, and the force of example. Relations with the neighbouring shaikhs or khans, herdsmen and villagers were generally friendly, and the Company stood wholly aloof from local politics, even when these removed from the scene its veteran friend Shaikh Khaz'al of Muhammara. To the public of Teheran the Company was little known; to the politicians and intelligentsia it represented primarily an issue which, since it concerned foreigners, could be made political; but the magnitude of the enterprise in Khuzistan, its mastered difficulties, its enormous financial investment, its expanding and beneficial social influence, its vast technical and industrial feats accomplished, these were almost wholly unrealized. Few indeed were the critics in Teheran who, to see for themselves, made the journey to Abadan or to Fields.
The relations of Riza Shah himself (crowned as such in 1925) with the Company were correct and outwardly cordial; he had by 1932 twice visited the Company's operations, with great expressed satisfaction.
Some signs of interest were shown in Persian oil during the middle and later nineteen .. twenties, by others than the AngloPersian. A firman granted fifty years earlier to a Persian notable was reaffirmed in 1924 in favour of a surviving kinsman and his friends, who formed the Kavir-i-Khurian Company for the exploitation of oil in the Sernnan district; and a controlling interest in this enterprise was acquired soon afterwards by none other than Khostharia (p. 38), who in turn sold a majority shareholding to the Soviet Government and smaller blocks of shares to Persian and French .investors, Some drilling was carried out, without favourable result. This work, however, and the interest of, the French shareholders led in Hj27 to the formation in Paris of a Franco-Belgian group, the Syndicat d'Etudes Franco-Persanes. This became a candidate for a larger north-Persian Concession; and in June 1930 a Societe Franco-Persane de Recherches was formed, with the Syndicat as a participant in it. Geologists were sent to Persia for a beginning of exploration, but no active operations .followed. The Company was renamed Franco-Iranienne in 1935.
III. 1933: A NEW DEAL
Persian statesmen had convinced themselves by the later nineteen-twenties that the 1901 Concession, even as interpreted by the
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Armitage-Smith Agreement of 1920, was no longer adequate to the present scale of the Company's operations, nor to the change of times. Hostile critics of the Company did not hesitate to allege that the original concession was invalid, that Persian rights were ignored, that their receipts were unjustly diminished by devices of accountancy (by the exclusion, for instance, of subsidiary companies, and by the sale of oil to the British Fleet at less than commercial rates), that the process of Persianization was too slow and the concession itself too extensive. The Company on its side felt the need of more explicit provisions, a longer concessionary period to justify the immense financial investment existing and contemplated, and a more definite guarantee of undisturbed possession.
Initial discussions through 1929 to 1931 led to no result; Persian demands appeared to the Company excessive and unreasonable. Conversations, however, limited to the calculation of profits, were begun late in I93I, and in February I932 the Council of Ministers agreed to a draft embodying new principles. This, as initialed by plenipotentiaries, was sent to Teheran in May 1932 for ratification. But at this point appeared a further factor disturbing to the Government: the Company's accounts for 193I-2 showed substantially diminished profits, a natural consequence of the severe world-wide depression; and the Government, which had received £1,436,000 for I929 and £1,288,000 for 1930, was to receive only £307,000 for 1931. Confronted with this, it resentfully declined to ratify the draft agreement, requested (in vain) that a mission from the Company should visit Teheran, stated that its own counter-proposals were en route-and on 27 November 1932 suddenly announced its outright cancellation of the concession, while simultaneously expressing its willingness to negotiate another. The Majlis on I December confirmed the decision, which was conveyed to the Company and elicited its strongest protests.
These were followed next day by a letter from the British to the Persian Government declaring the cancellation to be inadmissible and reserving the right to 'take all the legitimate measures' to protect British interests; and a few days later it was stated that unless the Persian letter of cancellation was withdrawn within a week, the matter would be referred to the Permanent Court of International Justice. The Persians refused to admit the com-
OIL. UNDER RIZA SHAH 59
petence of this Court; whereupon the Foreign Office referred the dispute, as one of urgency, to the Council of the League of Nations, under Article 15 of the League Covenant.
While the Company's operations in Persia were allowed to proceed without interruption, the reference to the League was followed by the tendering by both Governments of the full statementsof their case to the Council. Mr. Benes of Czechoslovakia was on 24 January 1933 appointed as rapporteur; two days later both Governments, through Sir John Simon and M. Davar respectively, stated their positions orally to the Council; and, after a week of negotiations by the rapporteur with both, he announced that each had agreed to a temporary withdrawal of the case from the Council's consideration, in hopes of reaching direct agreement. The Council concurred. During February direct negotiations continued in Geneva and Paris; in April, still with the close cognizance of the rapporteur, they were transferred to Teheran whither Directors of the Company and, finally, the Chairman proceeded. After hard bargaining by the Shah and his ministersgrotesquely misrepresented in later years as dictation by the Company to a powerless Govemment=-a new Convention was signed on 29 April, was ratified by the MajIis and the Shah a month later, and was announced by M. Benes to the League Council as an effective disposal of the dispute. Both Governments expressed their satisfaction at the amicable settlement, which contained in its Articles 21 and 26 a specific guarantee by Government against premature determination; 1 both thanked the League Council and its rapporteur for their good offices, and both addressed the Registrar of the Permanent Court with the request that the Court should accept in certain cases, should these. arise, the duty of appointing an umpire to assist in arbitration.
The new Agreement extended the Company's rights for a further thirty-two years-to the end of I 993-but limited them to a defined area (one-quarter of the original D' Arcy grant) in south-west Persia: an area which Was by 1938 to be further restricted to one of roo,ooo square miles. A new basis for the assessment of royalties was provided. These would be calculated at 4S. sterling per ton, with allowance made for increase in this rate in the event of a depreciation of sterling in terms of gold, and with a guaranteed
1 It was in return for these explicit guarantees of security of tenure, and the extension of the period, that the Company agreed to the reduction of area.
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minimum of £750,000 in any year; and to this was to be added, first, 9d. per ten as commuted taxation (to give a minimum total sum of £225,000 a year) and, secondly, a sum equal to 20 per cent. of any distribution made to the Company's ordinary stockholders in excess of £670,000 in any year and, upon expiry of the concession, a sum equal to 20 per cent. also of the difference between the Company's GeneralReserve on that date and that on 31 December 1932. The royalties for 1931 and 1932 were to be recalculated on the new basis; they amounted to £r,339,000 and £I,525,000 respectively. A payment of £1 million was made additionally in settlement of all or any outstanding claims. The Company bound itself to produce, refine, and sell oil through a separate Company in the province of Kirmanshah, where the Naft-i-Shah field had been left undeveloped. An expedited process of Persianization of employees was envisaged, with an annual grant for the professional education of Persian students in Great Britain. Arbitration procedure was laid down, to deal with any later dispute that might arise.
By the new settlement thus freely negotiated and ratified by the Persian Government and endowed with all the sanctity of ail agreement blessed by the League of Nations, whose good offices had secured it, it seemed that the further operations of the Company in Persia, whatever risks or adverse fortunes they might encounter, must at least be beyond the reach of political criticism or disturbance.
IV. FIELDS AND ABADAN, 1933-9
Relations between the Persian (Iranian) Government and the Anglo-Persian Oil Company-renamed Anglo-Iranian in 1935, to conform with Riza Shah's changed name for his country-remained generally satisfactory throughout the last third of the period between the wars: even inveterate critics of the 'Foreign Company' had for a time little to say, though the essential uneasiness of the situation-that of a highly prospering foreign enterprise confronting a suspicious and emotional Persian nationalism-still tacitly obtained. The terms of the new concession, favourable as they were to the nation and questioned by no single voice as to their validity and authority, were punctiliously observed-or rather, as was habitual, far surpassed-in the services rendered by the Company. The decision in the one controversial issue which
OIL UNDER RIZA SHAH
arose was conceded as an act of grace by the Company: that the calculation of royalties be allowed on a basis of metric tons of z.ora lb., instead of long tons of 2,240 lb. The increased royalties were paid and accepted without incident or question; only at the end of this period, in 1938 and 1939, was some Persian dismay expressed at their failure to increase. These contributions to the Persian Treasury 1 . had long since become necessary to the stability and almost to the existence of the state, and represented a main part of Persian receipts from all sources.
The duty imposed by the 1933 Agreement to limit and define the concessionary area was duly carried out and notified to Government in 1938. The finally selected roo.ooo-square-mile area was bounded on the north by an irregular line running parallel to the main trend of the Zagros ranges, from its north-eastern point on the 'Iraq frontier to its south-western end on the Straits of Hormuz.
Another direct consequence of the new Agreement was the development of the Naft-i-Shah field. The Kirmanshah Oil Company, an ad hoc subsidiary, was registered in London in June 1934. Drilling recommenced on the small but productive structure-or half-structure-which was soon equipped with necessary installations and buildings in readiness for production. A small topping-plant was erected, enabling products not wanted at the refinery to be 're-cycled'. A 3-inch pipeline was constructed to Kirmanshah, 158 miles distant across mountainous country rising in places to 5,000 feet; with four pumping stations, it conveyed Naft-i-Shah crude for treatment at a small refinery erected three miles from the city. This was soon brought into operation with an output of some 100,000 t/y, and took its place in the northern area of the Company's internal supply and distribution system.
The scene of another development of the period was the wide region of Persia which had now been excluded from the AngloIranian's area. Of Khostharia, North Persian Oils, and the Sinclair group no more was to be heard; but in 1937 the grant of a concession for fifty years was made to the Amiranian Oil Company,
1 For the years 1933-'7 inclusive they amounted to £1,812,000, £2,189,000, £2,220,000, £2.580,000 and £5,545,000; in 1938 the payment fell to £3,307,000 and for 1939, not surprisingly, to £2,770,000, thus producing a situation which special steps were taken to meet when it arose (p, 124).
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an enterprise registered in Delaware, U.S.A., and controlled by the Seaboard Oil Company of that State. The Agreement covered a wide area of northern and eastern Persia, which was to be reduced within fifteen years to one of 100,000 square miles. The royalty payable was ¥. a ton, with security against currency fluctuations and with the addition of 20 per cent. of profits. The Amiranian _ Company .proceeded to two years of extensive geological survey;
but although attractive structures were not lacking, no such prospects were discovered as to compensate for the unfavourable inland situation of the concession, and it was abandoned in 1939. In May of that year an exploration licence was granted to a Dutch mining company, the Algemeene Exploratie Maatschappij, covering the five northern provinces. If oil were found, the licence would be superseded by a sixty-year concession; the Persian public were to be allowed to subscribe up to 4-0 per cent., in the event of public subscription being invited; no shareholding other than Dutch or Persian was admissible, and the latter Government was to receive 50 per cent. of profits realized. The outbreak of war, however, prevented the undertaking of field operations, and the licence was abandoned in 1944-.
The Anglo-Iranian was more fortunate. The period from I933 to 1939 was. fruitful in its confirmation of the new sources of supply, which had been located before 1930, and in fresh discoveries. These were.achieved by strenuous exploration and testdrilling, which were restarted with all the encouragement of the new concession as the period of depression came to an end. These operations were both costly and arduous in their necessary provision of roads, transport, water and fuel supplies, drilling and technical equipment, and shelter, maintenance, and domestic necessities for staff and workers, Persian and British, in locations often the most remote and inaccessible. A number of seemingly hopeful sites had, as a result of this campaign, to be reluctantly dismissed; but thanks to persistence and the advance both of regional knowledge .and of structure-finding technique-since all geophysical methods had by now come into use-good prospects were revealed both in new areas and in some which had been formerly abandoned, and early in 1934 arrangements were made for testdrilling at a number of chosen locations.
At Zeloi, where the probability of a buried anticline similar to that of Masjid-i-Sulaiman had led to the drilling of three wells in
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1927 and 1928, a fourth well was begun in I936 and carried to II, I 90 feet (one of the world's deepest at that time), but found no oil. A move was then made northward to Lali, immediately adjacent. Here a well sited by geophysical means and drilled in 1938 entered gas-bearing limestone at a depth of less than 4,000 feet. Later exploration confirmed the presence of oil in a spacious anticline in which the limestone reservoir-rock was 1,200 feet thick. Production, however, was not to be realized for ten more years.
Simultaneously with the work at Zeloi, a well was drilled ten miles north-west of Haft KeI at Naft Safid, where earlier attempts to find oil had failed. Those now made, from 1934 to 1937, were successful: a limestone structure of the usual type, fifteen miles long by two broad, was found to contain oil and gas.
Sixty miles south-south-east of Haft Kel, at Agha jari, where an oilfield had been discovered before the depression stopped work, drilling was resumed in 1935 and soon confirmed the existence of oil deposits of great magnitude stored in the usual type of domed limestone anticline overlaid, with the usual disharmony, by some 4,500 feet of Upper and Lower Fars. Progress, however, towards production, which would call for major Fields' installations, buildings, and a hundred-mile pipeline, was not far advanced by the outbreak of war. At Pazanun, some fifteen miles south-east of Agha J ari, drilling at the same period revealed an extensive gasfield, but no oil: this was left, for the time, unused.
The Gach Saran structure, located before 1930, still awaited proof and development. A well drilled in I935, and others thereafter, satisfied the Company that in spite of the higher gravity of the oil (32 degrees A.P.I.), this field was the first candidate for development among the newer discoveries. The oil-bearing limestone, itself 1,500 feet thick, lay at a depth of 3,000 feet and formed a dome some twenty miles long and nearly five wide. By 1936 a development scheme was drawn up for progressive fulfilment; further wells were drilled, the necessary gathering lines, multistage gas separators, and tankage were assembled and erected, pipe was ordered for the necessary 160 miles of line to Abadan, and the construction of domestic and industrial buildings made progress. A project was formed, but not immediately realized, for constructing a sea outlet, and possibly a refinery, for this oil nearer to its source, perhaps in the neighbourhood of Bandar Shapur on the Khor Musa inlet, the terminal of the trans-Persian railway.
64 OIL IN THE MIDDLE EAST
Thus the short period from 1934 to I939, in which the confidence inspired by the new Agreement was shown by the vast expenditure incurred, brought into being no fewer than four major oilfields and one gas-field, additional to the three already under exploitation, Meanwhile, production in these years was limited to Masjid-i-Sulaiman and Haft Kel fields, with a yearly greater proportion being contributed by the latter, Completely equipped -between 1933 and 1936, it was already by 1934 giving 2 million tly, and over 6 million by 1939, Its oil was carried to Abadan by further pipelines constructed between 1933 and 1938, The total of Persian production amounted to 7'08 million tons in 1933. from 1934 to 1938 reached 7'53, 7'48, 8'19, 10'I6, and 10'19 million, and in 1939, thanks to the market disturbances and sea dangers resulting from the war, fell to 9'58 million. These figures, except the last, indicate a gradual rise in production; but they do not fully reveal the progress, consolidation, and improvement achieved in all the varied and increasingly complex installations necessary for the development of oilfields to the highest economic and technical standards, the many ancillary and supporting operations of land and air transport and communications, the scrupulous maintenance of vehicles and machinery, the erection, upkeep, and equipment of buildings, the background of scientific research, the services and amenities provided for staff and workers and their families.
The great Abadan refinery increased during the same halfdozen years in scale and flexibility and in the quality of its products. The crude oil reaching Abadan by the pipeline system was there subjected to processes of distillation, of cracking (for which a capacity of 100,000 bid was available by 1938), and of acid treatment, on lines suited to each of various products and processes; and then, in many cases, of re-distillation. Secondary products prepared at Abadan were 'white spirit', vaporizing oils, a small quantity of aviation spirit, and, in 1938, road. asphalt and the barrelfactory for which this called. A chemical manufacturing plant provided, from the solid sulphur recovered in Fields, all the sulphuric acid used in the refinery.
The storage capacity at Abadan amounted in 1938 to some 6 million barrels, mostly in the form of 7o,000-barrel tanks. It was situated in two great tank farms, one between the refinery and the Bahmashir River and the other at Bawarda on the Shatt al-
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'Arab three miles below Abadan, Ten loading jetties had been built along the Abadari-Bawarda foreshore and arrangements were made for a further loading-area at Khosrawabad, seventeen miles downstream. Marine equipment included a workshop and floating dock. A powerful water pumping station had been erected. Steam for use throughout the refinery was provided centrally as well as by individual batteries of boilers. Electric power was supplied from a powerful modern power-station which provided not only for Abadan refinery and town, but also for the city of Khoramshahr (formerly Muhammara), eight miles away.
During the decade preceding the Second World War the small quantities of crude exported from Persia went to the United Kingdom and Australia for the Company's own refineries and to Egypt for that of Anglo-Egyptian. Refined products from Abadan supplied Persia itself and southern 'Iraq, India through the BurrnahShell organization, the Middle East and East Africa through Consolidated Petroleum Limited, and the Far East, Africa, and Europe through the Company's own marketing subsidiaries. The Company's tankers provided at this period from 75 to more than 90 per cent. of the south-to-north tanker traffic through the Suez Canal.
The conclusion of the 1933 Agreement was followed by the development of the Company's services in favour of its Persian workers on lines already well established. Such were its health and medical services, its housing estates and town-planning, its water and sewage systems, its active assistance to the municipalities of Abadan and Ahwaz, A 'General Plan' was agreed in 1936 with the Government for the substitution of foreign by Persian staff as rapidly and as completely as could be found practicable. It was hoped to reduce non-Persian employees from a proportion of 171 per cent. of the skilled grades in 1936 to 131 per cent. by 1943; unskilled workers were, of course, already exclusively Persian. The Company with this policy (which was its own) and apart from its educational benefactions in Khuzistan and Teheran, completed in 1939 its admirably equipped Technical Institute at Abadan and carried out the training of young Persians by a carefully graded service of vocational training courses. This programme, agreed in detail with the Persian authorities, was the object of meticulous care as well as ungrudged expense on the part of the Company and represented a great and continuing effort, for which it was given too little credit.
HOPE AND FULFILMENT IN 'IRAQ
WHILE diplomacy, both governmental and industrial, was still busy with the greater problems of 'Iraqi oil disposal, it was at Naftkhana in the Transferred Territory that the first 'Iraqi oil in 'commercial quantities' was discovered. After the success of the well drilled here by the Anglo-Persian in 1923, the High Commissioner, Sir Percy Cox, suggested to the Government that the moment was opportune to make explicit the rights due to this Company under the Perso- Turkish Agreement of 1913. He received the reply that that Agreement was unratified, but thatthe 'Iraq Government was not unwilling to accede to it and to grant reasonable terms; among these would be a royalty of 20 per cent. of profits (as compared with the 16 per cent. provided in the Persian concession) and the right to participate in the price-fixing of such products as were marketed in 'Iraq. These conditions were debated for many months; and on 30 August 1925 a concession was granted to Anglo-Persian on terms closely similar to those of the Persian Concession of 1901. The obligation was added to build a refinery near Khanaqin for the supply of 'Iraq's own needs, with the privilege of bringing Persian oil into 'Iraq for this purpose if necessary. A year later, however, the evident difficulty of calculating 'profits', and the recent precedent of the Turkish Petroleum Company's concession (p.69) led to revision and a new Agreement, which, instead of a share of profits, prescribed a royalty of 4S. (gold) per ton. The Khanaqin Oil Company had meanwhile been registered in London as an Anglo-Persian subsidiary and took over from its parent all the responsibilities, operations, and assets of the latter in 'Iraq.
Drilling on the Naftkhana structure began again late in 1925 for the development of the field, which lay twenty-five miles from Khanaqin and railhead. Few wells, however, were needed, and it was possible to discontinue drilling in 1928- 30. The field was equipped with normal production installations, a water supply was assured, a power-plant provided, domestic and industrial buildings
HOPE AND FULFILMENT IN 'IRAQ 67
erected. The construction of a 4-inch pipeline to a site on the Alwand River outside Khanaqin was begun in January 1926 and completed by April of the following year. A r-inch water-line took water to Naftkhana from Alwand. The refinery, which was opened in state by King Faisal in February 1927, was a simple topping-plant with a throughout capacity of some 150,000 t/y. It was destined to supply northern and central 'Iraq with products, while southern areas continued to draw from Abadan. Pipelines led from Alwand to Khanaqin railway station five miles distant, where a tin factory came into operation and the loading of cased or bulk products was carried out. The distribution and marketing organization of Anglo-Persian in 'Iraq was progressively improved; prices charged for locally-manufactured products were lower than those of equivalent imports, though Government did not cease to ask for further reductions. Practical help was given repeatedly by the Company to oil-using irrigation-pump owners, whom bad times compelled to live on credit. In March 1932 a separate marketing company, the Rafidain Oil Company, was formed by Anglo-Persian to take over all activities of the KO.C., other than those of production and refining.
'Iraq thus became, early in its modern development, fortunately self-sufficient, or nearly so, in oil products. The quantities of these issued from Alwand averaged less than 100,000 t/y in the period from 1927 to 1934, but by 1938-9 had risen to almost 150,000. Nearly 1,000 'Iraqis were maintained in regular employment by the Company. The royalties paid to Government-its first taste of such revenues-amounted in 1927 to Rs. 105,000 (£7,800) and grew to annual sums ranging between £20,000 and £30,000.
Drilling at Chiah Surkh, in spite of previous failure, was resumed in 1924 and again in 1929, but difficulties were once more encountered and no commercial production was forthcoming.
II. THE RED LINE
Even with important questions to be settled between the constituent groups, and with the French shareholders and Gulbenkian still uneasy at American intrusion, the situation within the Turkish Petroleum Company was thought, nevertheless, sufficiently stable by the end of 1923 to permit the taking of steps towards validation
OIL IN THE MIDDLE EAST
of its rights in 'Iraq. The Americans, six 1 of whose companies were still interested, were content to postpone their purchase of shares until they could obtain more satisfaction regarding the conditions of participation and until the value of the enterprise should further declare itself. The position in 'Iraq, however, with an 'Iraq Government established and an Anglo- 'Iraq Treaty signed, seemed sufficiently assured-even though the expected League of Nations Frontier Commission, which was to recommend a settlement of the long-debated 'Mosul question', had still to appear.
While the Qaiyara seepages were still worked on a humble scale by the British Military authorities, and those of Kirkuk and Tuz Khormatu by the Naftchi family and the Government respectively, and while the spokesmen of the heirs 2 of Sultan Abdul Hamid were stating their claims to inherit the fabulous riches of the Privy Purse, including all 'Iraqi oil resources, Turkish Petroleum's negotiator, E. H. Keeling, reachedBaghdad late in
1 These were Standard Oil (New Jersey), Standard Oil of New York, Gulf Corporation, Atlantic Refining Company, Mexican Petroleum Company and Sinclair Consolidated Oil Corporation. The Texas Company dropped out in 1923, and Pan American Petroleum and Transport Company replaced Mexican in 1927, when the Sinclair Corporation gave up its participation. Six companies, therefore, were left to form Near East Development Corporation (p. 69) in 1928.
2 The claims of these, an ever-growing body of Turkish princes and princesses, had little effect on the development of Middle Eastern oil. With many bitter factions amongst themselves, they stood together in their assertion that all the oil rights transferred by Abdul Hamid to his Privy Purse were their rightful property. They claimed that the decree of 1908, re-transferring the proper-ties to the State, had not been ratified by Parliament: that of 1909 had been neither ratified nor officially published, and both were extorted under duress. The successor Sultan had in January 1920 issued a decree, re-transferring all to the Privy Purse, and in 1922 the Court of Qasamat had recognized the heirs' claims. The latter added that the Turkish Republic had no power or right to assign these properties, as it had done by Article 60 of the Treaty of Lausanne, to the successor states.
Their lawyers were active at Lausanne in 1923 and subsequently at Geneva.
In 1926 began the formation of companies to acquire and seek to validate these claims-the Anglo-Hellenic Finance Corporation, the Valideh Trust Limited and the Aegean Trust Limited. Many applications were made to the 'Iraq Government, which ignored them, and to the Turkish Petroleum Company. In 1930 both the Anglo-Turkish Mixed Arbitral Tribunal and the halo-Turkish Mixed Arbitral Tribunal declared the claim to be beyond their competence. Four other companies were subsequently registered in Canada to deal with the claims, and American lawyers found a fluctuating but agreeable income from the diminishing purses of the princes and princesses. That anyone of the successor states should at any time concede any part of these claims, remained inconceivable.
~HOPE AND FULFILMENT IN 'IRAQ 69
1923. He was to find his task of gaining a 'blanket' concession for 'Iraq, in fulfilment of the 19I4 promise, complicated not only by the general preoccupation in Baghdad with politics, but also by the efforts of competitors. One. of these represented the Phoenix Oil and Transport Company, another, fresh from successes in Arabia, was the Eastern and General Syndicate, another a group supported by Lord Inverforth, while in 1924, another, from the Pearson (Lord Cowdray) interests, visited Baghdad or whispered in London in the hope of swaying the 'Iraq or British Governments away from Turkish Petroleum claims and favour. Keeling continued his negotiations, with interruptions, until March I925; and on the 14th of that month a Convention was signed with the appropriate Minister and ratified by the Council of Ministers-in the absence, as yet, of a Parliament.
The Turkish Petroleum Concession of I925, covering for seventy-five years the whole of 'Iraq except the Transferred Territories and the Basra vilayet, provided for a royalty of 4S. (gold) per ton of crude oil: for the supply by the Company of 'Iraq's requirements in refined products: and for an obligation to begin drilling within three years with five drilling rigs working simultaneously, and thereafter to maintain a drilling footage of at least 12,000 feet a year. The concession allowed for the selection by the Company, within thirty-two months, of twenty-four 8-squaremile plots for its own exploitation, while, acting as agent for the Government, it was to offer by auction at least twenty-four others to all comers: a provision intended to meet, by an arrangement which could scarcely have been workable, American insistence on the Open Door.
While active operations began and proceeded in 'Iraq, the longdrawn attempt at reconciliation of conflicting interests among the groups filled, behind the scenes, the years from 1925 to I928; andthe compromise finally agreed permitted no independent acquisition of rights by T.P.C. constituents except in the twenty-four (or more) plots not chosen by the T.P.C. itself, and, even then, such acquisition was allowable only to the Americans. On this basis, and greatly helped by the sensational oil-strike at Kirkuk in October 1927, a working agreement could at last be reached between all the groups; and the Americans, formed ad hoc into the N ear East Development Corporation, accepted transfer of half the Anglo-Persian shareholding, the latter company in return being
70 OIL IN THE MIDDLE EAST
compensated by an overriding royalty of 10 per cent. on all T.P.C. oil. The final shareholding in the Company was thus adjusted to its long-familiar form of 23·75 per cent. for each 'major group', and with 5 per cent. for Gulbenkian, and a definitive Group Agreement-the well-known Red Line Agreement-embodying these arrangements was signed on 31 July 1928. The T.P.C., limited strictly to functions of production and transport, was to act henceforward in the capacity of non-profit-making supplier of cheap crude oil to its constituents, one of whom would buy the Gulbenkian share at a just valuation.
The Red Line Agreement, variously assessed as a sad case of wrongful cartelization 1 or as an enlightened example of international co-operation and fair sharing, was to hold the field for twenty years and in large measure determined the pattern and tempo of oil development over a great part of the Middle East.
III. BABA GURGUR
Meanwhile much had happened in 'Iraq. The Mosul province had been finally awarded to that kingdom by the League of Nations in December 1925, and, under a treaty between 'Iraq and Turkey, the latter was for twenty-five years, to receive 10 per cent. of 'Iraq's oil revenues derived from the T.P.C. Concession. The general attitude of both Government and public, though not of all politicians, was friendly to the Turkish Petroleum Company, and its field work could begin in good conditions. A first geological mission headed by Professor H. de Bockh, toured 'Iraq in I926, and on its evidence drilling sites were selected and a programme for ten wells was established for I927-8. H. C. H. Bull proceeded to 'Iraq as General Manager and H. A. Hammick as Fields Manager: in London Sir Adam Ritchie, as General Manager until I929, succeeded H. E. Nichols, who had been Managing Director since 1921.2 Twelve modern rotary or combination drilling-rigs were dispatched to 'Iraq with staff, equipment, and supplies of every kind; a Fields' headquarters was established near Tuz Khorrnatu; and an organization for drilling and for all connected services was brought into rapid existence. Some 2,500 'Iraqi workers and fifty
1 For instance, in the report of the Federal Trade Commission (1952).
2 Sir John Cadman became Chairman of T.P.C. in the same year, 1926, succeeding Nichols who acted as such in 1924-6. From 1919 to 1924 the Chairman had been C. H. Smith and from 19I2 to 1919, Sir H. Babington-Smith.
HOPE AND FULFILMENT IN 'IRAQ 71
British engineers and technicians were mobilized, and the provision of water-lines, domestic and office buildings, workshops, store sheds, garages, vehicles, and much more could proceed.
Drilling began on 5 April 1927 at.Palkhana, six miles south of Tuz, with a ceremonial spudding in in the presence of King Faisal. It was followed by a second well three weeks later; but the drilling of these wells had to he suspended owing to mechanical difficulties at depths of 2,200 and 1,900 feet, without reaching .the 'main limestone'. Immediately after these a well was begun at Tarjil, southward from Kirkuk, but penetrated only the edge water of the Kirkuk structure. In May a beginning was made in the Jabal Hamrin, where a well at Khashm al-Ahmar was abandoned after encountering high-pressure gas and heaving shales, and another at Injana was for similar reasons not taken below 3,500 feet. A well at Jambur, south of Kirkuk, met with minor shows of oil and gas. Results at Qaiyara, west of the Tigris, were more significant: on 13 October oil in seemingly important quantities, but highly viscous and sulphurous, was struck in limestone at a depth of some 800 feet.
The well spudded in at Baba Gurgur, immediately north of Kirkuk, on 27 June 1927, was in contrast to all these disappointments destined profoundly to alter both the economic fortunes of 'Iraq and the oil-history of the world. The strike at Baba no. I on 15 October, when the oil by the violence of its force broke all control, flowed 'wild' for a week, and cost the lives of two drillers, indicated an oilfield so important as to lead the Turkish Petroleum Company, a few months later, to abandon for some years all operations in other areas. It concentrated thereafter on the Kirkuk structure, where from six to nine drilling rigs were continuously active for the next four years, and two or three thereafter.
A second well at Qaiyara early in 1928 repeated, with copious but viscous oil, the experience of the first. Two more wells were drilled at Palkhana in I928 and 1929, only to meet with highpressure water and gas. Three more were drilled without success on the Injana structure. At Khormor, forty miles south-east of Kirkuk, a well was taken to 6,500 feet in January 1931, but then abandoned after insignificant shows of oil. West of the Tigris two wens were drilled on the Khanuqa anticline, south of Qaiyara, but found gas without oil. Preparations for drilling were made at Najrna, north-west of Qaiyara, In January 1929 a well at Quwair,
72 OIL IN THE MIDDLE EAST
on the Greater Zab, penetrated 1,000 feet of the main limestone, but was perforce abandoned as a 'dry hole'. Finally, the anticlinal structure at Chamchamal, half-way between Kirkuk and Sulaimaniya, was drilled early in 1930, but yielded no more than a show of gas. A high-pressure gas-field was located in the Bai Hasan anticline, between Kirkuk and the Lesser Zab:
The first few wells on the Kirkuk structure, and the completion -of tests, revealed it as a field of immense capacity. It is a simple and relatively narrow anticline, productive throughout a length of sixty miles from a porous and fissured limestone reservoir-rock of Miocene to Middle Eocene age, unusually permeable. The main limestone, corresponding to the Asmari in Persia, is covered by a Lower Fars series of anhydrite, silty marls, and thin limestones and, above these, the Upper Fars group of sandstones and siltstones. Separated by low saddles, there are three domes of decreasing amplitude in the structure, those of Baba Gurgur, Avana, and Khurmala. The exploratory drilling carried out between 1927 and 1934, before the extraction of oil began, determined with much accuracy the great commercial possibilities of the field, its extent, pressures, and reservoir peculiarities.. This, with the comparative simplicity of technical operation and the high ability of those in technical control, made the Kirkuk structure a model of economical and efficient oil production. By the end of 1930 twenty producing wells had been completed on the structure, with others for oil-water and gas-oil level observation. One season's work in I 928-9 was carried out, at a number of locations, by a team of geophysicists using the seismic method.
Simultaneously with drilling, costly and laborious ancillary works proceeded: road-making, a water supply, piped from the Lesser Zab, store-sheds and their multifarious contents, garages and workshops, offices and laboratories, dwellings, canteens, and a hospital. The Fields' topping-plant was in operation by 1929. The Fields' .Headquarters of the Company moved from Tuz to Kirkuk in 1930. J. c. Templeton succeeded Hammick as Fields Manager in 1929 and was himself replaced by G. W. Dunkley in 1930 and by W. E. D. Cole in 1931. The labour force mounted in scale, with an average of some 2,000 'Iraqis, 125 Europeans, and 30 Americans in this early period. The conditions of work were stabilized and improved and employment with the Company attracted workers not only from Kirkuk and its Turkoman and
HOPE AND FULFILMENT IN 'IRAQ 73
Kurdish villages, but also from Mosul, Baghdad, and elsewhere. Security was good, relations with the Government and the public were satisfactory. Medical services of high quality were already in existence within the organization, and the training of 'Iraqi workers for higher technical and clerical functions could begirt.
J. Skliros succeeded Sir Adam Ritchie as General Manager in London in januaryuejo and held the position of Managing Director from 1934 to 1949. G. W. Dunkley became first Agent, then General Manager in the Middle East, resident at Haifa from 193 I to 1939.
IV. REVISED CONCESSION AND B.O.D.
The 'plot system' incorporated in the Turkish Petroleum Concession of 1925 was popular with nobody. The 'Iraq Government feared embarrassing rivalries between foreigners; the Company disliked the restriction to an area perhaps insufficient to cover the whole of revealed structures and the liability to competitive drilling -and, no less, the prospect that other rich structures, yet to be located, might fall into others' hands. When early in 1927 the Company requested extension of the period provided for its choice of plots, on the ground that a part of the concessional area on the Turkish frontier had been inaccessible to exploration, a year's prolongation was granted; a second request in 1928 was similarly granted and had the same effect of postponing the date by which the Government must make its own selection of the plots to be offered for competitive bidding. In 1929, however, application for yet another deferment was refused; the Government was becoming impatient, and the Permanent Mandates Commission at Geneva were under pressure to intervene and prevent further delays in plot-selection. The T.P.C. in November of that year notified its selection; it had, however, by this time become probable that no such plot-system would, after all, be applied. The Company confessedly desired a radically revised Agreement, and the Government, though unwilling for political reasons to propose this to Parliament, was prepared nevertheless, on terms, to favour the suggestion. The technical and economic reasons which made a 'blanket' concession preferable to a regime of competitive plotholding were in fact powerful, if 'Iraq was to enjoy the longterm benefits of 'unit development' by a fully reliable operator.
A new factor in the case had rather helped than hindered this
74 OIL IN THE MIDDLE EAST
trend of policy. Even before I925, another body founded in 1924 by a small English group which included Lord Inverforth, F. W. Ricketts, and Sir E. Manville, and which later was to become the B.O.D. Company, 1 had made contact with the 'Iraq Government. In 1928 an approach by its Chairman, Admiral Lord Wester-Wemyss, to the Chairman of the T.P.C. failed to indicate a way by which B.O.D. could, by agreement, be gratified in its desire to enter the field of 'Iraqi oil; and a brief flirtation with a company representing the Sultan's heirs (p. 68) availed it no better. The Government rejected the offer of a 14 per cent. shareholding in B.O.D., but was interested in their suggestion to build a Tigris-Mediterranean railway i and meanwhile the Company, inadequately financed for major operations, made overtures to Italian industrialists for support.
Negotiations between Turkish Petroleum and the Government, with the B.O.D. as an embarrassing third party at the door, continued from mid-I928 to the late winter of 1930-I: a leisurely tempo explained by the over-supply of oil in world markets which had now supervened, by the economic crisis which had already spread from America to Europe. and, to some extent, by differences of viewpoint between the Company's constituent groups. The Company agreed, at the Government's suggestion, to consider a Mediterranean railway project, to proceed with early construction of a Kirkuk-Mediterranean pipeline, and to make substantial interim annual payments to the 'Iraq Treasury, on condition of receiving a concession, even for a reduced area, in which the whole included acreage should be its own. A revised Convention on these lines was, after protracted bargaining, agreed and signed OIl. 24 March 193I, and thereafter ratified by Parliament.
With the royalty rate of ¥. (gold) unaltered, the new Agreement provided for the abandonment of the plot system and for the restriction of the Company to an area of 32,000 square miles in the Mosul and Baghdad vilayets, east of Tigris. The Company was obliged to build a pipeline to the Mediterranean, with a capacity of not less than 3 million tons a year," to complete it before the end of
1 The initials signify British Oil Development, but B.O.D. Limited was the registered name.
2 At least 50 per cent. of this capacity was to be taken to the Bay of Acre until the pipeline should attain a capacity of at least 4 million tons; this stipulation was, however, removed by an Agreement of 25 May 1939.
HOPE AND FULFILMENT IN 'IRAQ 75
1935, and to pay forthwith £400,000 (gold) a year, of which half would be recoverable from future royalties. No railwayconstruction duty was assumed and no drilling obligations were specified. The supply of refined products to 'Iraq was to be 'secured' by the Company-a task in fact transferred; .. with government consent, to the Khanaqin and later to the Rafidain Oit Company.
A consequence of the revision of the 1925 Concession was an alteration in the rate of Anglo-Persian royalty (p. 70) from the territory covered; instead of 10 per cent. of the oil obtained from the intended twenty-four plots, the T.P.C. groups agreed that a royalty of 71 per cent. should be payable to their colleague in respect of oil won under the 193I Concession.
While the Iraq Petroleum Company, so called since 1929, now saw its way clear to full exploitation of its oilfield, the Government of 'Iraq had at its disposal further areas to allot. It received for a time no offers for its southern province; but for the northwestern area now released by I.P.C.there was a ready candidate, the B.O.D. Company. This group, which during 1930-2 was constrained to accept a majority of foreign shareholding,.' applied to the Government in the latter year for rights over the ex- T.P.C. area west of Tigris, and negotiations proceeded. A concession covering all 'Iraq, west of the Tigris and north of the 33-degree line (some 46,000 square miles), was granted on 25 May 1932 and later ratified by Parliament. It prescribed a ¥. (gold) per ton royalty, with a minimum of £200,000 (gold) per year. Dead-rent payments, pending production, were to begin at £100,000 a year and to rise to £200,000; the Government was to be entitled to 20 per cent. of all oil produced-a remarkable addition to the I.P.C. terms; the Company was to drill with three rigs within eighteen months and to increase these to nine within a year of striking oil,2 A pipeline to the Mediterranean, with a capacity of at least I million t/y, was to be built, provided always that the oil be of marketable quality, within seven and a half years-a period extended, in the event, for a further seven.
1 Shareholding in 1931 was 46 per cent. British, 30 per cent. Italian through the parastatal A.G.I.P., I2 per cent. French-Swiss, I2 per cent. German and Dutch (through Ferrostall, Dutch associate of Krupps, and Deutsche Fruehand, a banking and industrial combine).
2 The drilling obligation was altered in May 1939 to one of 12,000 feet a year.
OIL IN THE MIDDLE EAST
V. MEDITERRANEAN PIPELINE
A pipeline to convey 'Iraqi oil to the Mediterranean was, from the first, understood by allto be a necessary means of commercial development. Specified in the San Remo Agreement, it was prominent from then onwards in all calculations affecting the ultimate form of the 'Iraqi oil industry, and its construction became a definite obligation under the revised LP.C. Convention of March 1931.
The planning of this line or lines involved not merely determination of the route to be followed but also the selection of terminal points on the coast. This problem gave rise to prolonged intergroup discussions, in which the degree of protection (if any) from weather offered by various ports, the mileage from Kirkuk to each of these, the degree of security prevailing in the various tribal areas, and the relative advantages of transit across, and terminals in, French or British mandated territory were all considered. The choice of ports limited itself to Haifa and Tripoli; and, since British and 'Iraqi feeling favoured a southern route through Palestine, while the French preferred a northern to the Lebanon, the compromise decision was reached for a double line of wishbone pattern. Two lines, each of 2 million t/y capacity, were to run parallel from Kirkuk across the Tigris to the Euphrates, and to cross the latter near Haditha, 148 miles from Kirkuk; they were there to bifurcate, the one running across Transjordan and Palestine to Haifa, the other by way of Syria and the Lebanon to Tripoli. The length of the southern line would be 620, the northern 532 miles.
Early in 1931 Skliros visited the capitals of the four transitStates and obtained from each, in almost identical terms, agreements for the passage of the pipelines and erection of the necessary works. During the summer detailed demarcation of the routes was carried out. The selection of terminal locations began and sites were decided for the main-line pumping-stations, of which the design called for twelve. Land acquisition was undertaken, middesert water supplies organized by search and well-drilling, and the building of railhead depots at Baiji on the Tigris, at Horns in Syria, and at Mafraq in Transjordan was begun.
The construction of this, the first of the great Middle-Eastern pipelines, called for the solution of many problems posed by the
HOPE AND FULFILMENT IN 'IRAQ
vast and inhospitable territory, the lack of water, shelter and supplies, the rough desert tracks and river barriers. Simultaneous tasks were the organization of a numerous and varied staff and labour supply (with its limiting condition of recruitment only of nationals of the country concerned), the supply of these with every necessity of life in scattered mid-desert camps, the maintenance of vehicles and installations, the establishment of telegraphic and wireless communications. The main lines themselves, of rz-inch and locally of ro-inch diameter, were strung, welded, wrapped, and buried by four main-line construction gangs. Of the main stations, seven (including three double stations) lay in 'Iraq, three in Syria, and two in Transjordan. At each not only large-scale pumping plant 1 and connected installations, but also tankage," power, light and water, stores, repair shops and telecommunications, with housing accommodation for all types of staff and labour, were provided. Telegraph lines ran parallel to the online throughout its length and wireless telegraphy was provided at all stations and terminals. Every station had its landingground and each its vehicles. Two hundred thousand tons of materials were brought from overseas, 37 million ton-miles were carried by the railways of the countries concerned, 23 million ton-miles were run by the Company's main transport fleet. The twelve main pumping stations were each a veritable township in itself, lying on the fringes of inhabited country or deep in the desert.
The work was carried out with no serious delay or dislocation between 1932 and 1934. The line came into use late in the latter year and was officially declared open by King Ghazi of 'Iraq at a ceremony at Kirkuk in January 1935; whereafter the record of the years 1934-40 was one of steady pipeline operation," with such improvements and additions as experience indicated. The greatest welded pipeline then existing had been constructed and 'Iraq could take, in a day, a high place among oil-producing countries. Since, however, the productive capacity of its field vastly exceeded the
1 Each double station (K1, K2, and K3) had six and each other station three sets of pumps and engines, each set being designed to handle I million t/y.
2 K1 station was provided with six 97,000 barrel tanks, each of the other stations with one of 30,000 barrels.
3 Production from Kirkuk structure from I934 to 1939 inclusive was (in million tons), 0'96, 3'58, 3'91, 4'14, 4'16, 3'81. Pre-pipeline production, from 1927 to 1933, had been (in thousands of tons), 81, 39, 32,41,32, r6, 43.
OIL IN THE MIDDLE EAST
limits imposed by two rz-inch pipelines, the study of market possibilities and further outlets for 'Iraqi oil engaged all the attention of the I.P.C. directors. The decision to double, or more than double, the pipeline was reached in principle in 1938; it approached, in 1939, a stage near to practical execution, of which the intervention of the war led to so grievous a postponement.
Meanwhile, the development of the Kirkuk field had proceeded far. Production wells on the Baba Gurgur section, suitably grouped, supplied the three de-gassing stations of Shurau, Baba, and Hanjira. Other wells for later production and for structureobservation were drilled both on the Baba dome and on that of Avana, north of the Zab. Drilling on other locations was discontinued and rigs working at Kirkuk were reduced to three and later to two. The slow processes of land acquisition took their course. The 'Iraqi workers were treated on lines far in advance of current 'Iraqi levels in remuneration, security, and provision for welfare. Local purchase and the use of 'Iraqi contractors spread more widely the direct benefits of the industry. Increased help was given to the Kirkuk township and to technical institutions in Baghdad. Communications and services in Fields were improved: the power-house was extended, a new topping-plant finished, more industrial buildings erected, roads improved, new offices completed, the hospital at KI station enlarged, a compact housing estate laid out for the foreign staff, personal transport organized for local workers. To remove the objection raised in some quarters against the delivery at seaboard of 'sour' crude, the erection of a stabilization plant in Fields was undertaken in 1936 for the removal of obnoxious elements from the oil before pumping it to the sea. This plant, which involved modification in the design of the de-gassing stations, came into operation in 1937.
The devaluation of sterling in 193 I led to a controversy between Government and Company as to the effect of this on the deadrent and future royalty payments which the concession expressed in '£ (gold)'. The Company's decision to pay in sterling at the Bank of England's gold-sterling conversion rate, though accepted by Government only provisionally and with reservation of its rights, increased materially its sterling receipts. Apart from the continuing payments by the B.O.D. and the Basrah Companies, (p. 82) which by I939 were together contributing £400,000 (gold) or about £665,000 sterling annually, those of the I.P.C.
HOPE AND FULFILMENT IN 'IRAQ 79
itself amounted to nearly £It million a year in the period I934-7 and substantially exceeded that sum in each of the years I938-9. Recovery of half the dead-rents paid in 1931-4 was completed in 1937. This 'oil revenue' of over £2 million per year 1 exceeded any other single source of 'Iraqi revenue at this period, except their Customs receipts, and formed more than a quarter of the total revenues of the State.
VI. WEST OF TIGRIS
The grant of the RO.D. Concession in May 1932 was followed in that Company by an immediate reorganization and the collection of new capital. Mosul Oilfields Limited, with British, Italian, German, Dutch, French-Swiss, and 'Iraqi shareholding, was registered in December 1932 for the purpose of acquiring the share capital of B.O.D., while leaving the latter to operate in the field; Lord Goschen became Chairman of both Companies and Lord Glenconner, Managing Director. A technical committee was set up in London. Drilling equipment was ordered from Germany, representing the German share of capital contribution. Geologists and production experts visited the territory on behalf of the incoming Company. After an intensive period of preparation and organizing and the opening of a headquarters at Mosul drilling could begin where that of the LP.C. had left off, and with the advantage of the latter's recorded experience. British drillers were engaged for the work, using cable-tool equipment until the arrival of heavy German rotary equipment in I934.
The first well drilled by the new Company was completed, without success, at Mishraq, half-way between Qaiyara and Mosul, and another at Qaiyara itself. In 1934 further exploration was carried out with rotary equipment at Qaiyara; wells, which revealed only low-quality oil, were completed on the adjoining Najm:a, Jawan, and Qasab anticlines and others were drilled with no greater success at Sadid and Hibbara and, far to the north, at 'Ain Zala. In 1935, while drilling with nine rigs continued and orders were placed for more German equipment, the earlier RO.D. project of a Qaiyara-Mediterranean railway was again considered
1 Sums paid by LP.C. to the Government in 1934-40, were (in thousands sterling), £1,294,753,763,913,1,563,1,514, and 984. (The payments for 1935- 7 were decreased by recoveries of half dead-rents for the period 1931-4). These were exclusive of RO.D. and B.P.C. payments.
OIL IN THE MIDDLE EAST
and directors visited 'Iraq and Syria to assess its possibilities. The plan was in general terms approved by the 'Iraq Government, who visualized the creation of a Government refinery at Qaiyara; it was equally welcome to the railway concessionaire companies in Syria, as seeming to offer the possibility of good oil and general traffic. The cost of the railway, which would be built by an affiliated Mosul Railway Company, would be recoverable by theB.O.D. from oil royalties payable to the 'Iraq Government.
But, future railways apart, the highly expensive organization necessary to conduct current B.O.D. operations was, meanwhile, taxing its resources to the limit, and beyond it. Further British capital could not, on suitable terms, be attracted; the Italians had by I935 become majority shareholders, with a 52 per cent. holding; the German proportion was less but considerable. The directors were five Italian, one British and the Chairman, one French and two German. But the financial strain grew ever greater and with it the difficulty of paying the 'Iraq Government its dues, which had now increased to a rate of £200,000 (gold) a year. Egyptian participation appeared at one moment to be probable, but did not materialize; 'Iraqi shareholding was insignificant. The solution, if any, must come from another source.
Early in 1936 conversations began between the Italian element in Mosul Oilfields and the Managing Director of I.P.C., which Company was on various grounds not averse from regaining the lost areas west of Tigris. By March I936 an advance of cash had been made to M.O.F. through an American intermediary; by August, I.P.C. directors were in session with those of M.O.F., and a new concern, Mosul Holdings Limited, was registered in October 1936 to acquire the shares of Mosul Oilfields, This it proceeded rapidly but discreetly to do. Those held by the Italians and Germans were bought, and their representatives retired from the scene. By the beginning of 1937 the I.P.C. interests were in effective charge and in 1941 Mosul Holdings, renamed the Mosul Petroleum Company, received the assignment from B.O.D. of its 1932 Concession. Both B.O.D. itself and M.O.F. were liquidated and disappeared in the same year.
In acquiring the B.O.D. Concessions and interests, the LP.C. groups added to their territory, though upon terms markedly less advantageous, an extensive tract with numerous well-marked
HOPE AND FULFILMENT IN 'IRAQ 81
structures already proved to contain oil. It remained to be seen whether, as a result of further operations, which were bound to be expensive, a grade of oil would be discovered superior to that of Qaiyara and the adjacent structures, whose problems of viscosity and impurity were still all unsolved.
The operations west of Tigris, under LP.C. management from the spring of 1937 onwards, were now redirected and reanimated. George Heseldin, from the LP.C., became Fields Manager. A building programme was carried out at Qaiyara, with the erection of residences, an enlarged hospital, a club, cinema, swimming-pool, and many industrial buildings. Some 1,500 'Iraqis were in employment; foreigners-British, German, Italian, French, American, . Polish, Rumanian, Swiss, and White Russian-varied in numbers between sixty and seventy. The protection of the Company's camps and communications continued to be ensured by contract with the Chief of the Shammar tribe.
Deep test wells were drilled on the Addaya and Jabal Makhul structures, and on those of Butma and 'Alan, north of Mosul. Other wells were drilled on those of Zambar and Qusair, west of Mosul towards Sinjar, others again on structures already tested, including that of 'Ain Zala, A location at Sinjar was sited though never drilled. At Qalian, where a depth of over 9,000 feet was reached, light oil was found, but in small quantities; elsewhere, to the disappointment of all hopes, no commercial possibilities were revealed. In the Euphrates area wells were drilled at Awasil and abu [ir near Ramadi, at Hit and at 'Ain al-Naft, and at 'Ana and al-Qa'im, while a geophysical party sought new structures in that region. Nearly twenty locations in all were tested and a total of 150,000 feet had been drilled by the middle of 1938. The maintenance of drilling camps at these distant locations, involving the erection of many temporary buildings, heavy transport of men and materials, and often the provision of water-lines from the rivers, was a formidable task.
From October 1938, the time of Munich, German and Italian staff began to leave 'Iraq, the German drillers being replaced by American. In July 1939 the drilling programme was reduced to one of four operating rigs; but one of these at long last succeeded, a few days before the outbreak of war, in locating deposits of light oil, at a depth of 5,000-6,000 feet, in the limestone of the anticlinal structure at 'Ain Zala; and it could be hoped that some
OIL IN THE MIDDLE EAST
reward for twelve years of costly and disappointing efforts west of the Tigris was at last to be gained.
VII. THE BASRA PROVINCE
The efforts of the 'Iraq Government, after its grant of the 1925, 1931, and I932 Concessions, to find suitable concessionaires for the exploitation of its oil-if any-in southern 'Iraq, met with little response ; and this in spite of recurrent rumours and the visits to Basra, incognito or otherwise, of various oil company representatives. But the proving of important fields in Bahrain and al-Hasa from I932 onwards led the LP.C. groups by 1937 to consider seriously the acquisition of a Basra concession. Since none of the LP.C. constituents could apply independently, that Company itself must undertake the task. An Agreement for seventy-five years, covering all 'Iraq not already allotted," was concluded accordingly between the I.P.C. and the Government on 29 July I938, upon terms closely similar to those of the B.O.D. Concession. A Basrah Petroleum Company, similar in constitution to the I.P.C. and to Mosul Holdings, was formed. The terms included a royalty of ¥. (gold) with a minimum of £200,000 (gold) a year; 2 provision for royalty revision after twenty years: payments for commuted taxation: a dead-rent of £200,000 (gold) a year pending export of oil: the duty of delivering to the Government, at well-head, 20 per cent. of oil produced: a drilling obligation of 12,000 or, after striking oil, 20,000 feet a year: and an obligation to commence within seven and a half years the transport to seaboard, at least, of I million tons of oil a year, or 2 million tons if oil resources within the concession proved comparable to those of Kirkuk,
Expectation of the presence of oil in the Basra area was high, both on regional grounds and by reason of the discovery in 1938 of the great Burgan structure in Kuwait territory. The new Company lost no time in organizing a base and supply depot at Makina, outside Basra city, and dispatching its geological parties to examine the territory. A geophysical survey was carried out between March 1939 and May 1940.
1 That is, all 'Iraq south of the southern boundary of the B.O.D. and I.P.C.
Concessions, including the 'Iraqi interest in the 'Traq-Sa'udi Neutral Zone; some 93,000 square miles.
2 This sum was to be doubled in the event of the discovery of oil comparable with that of Kirkuk.
HOPE AND FULFILMENT IN 'IRAQ 83
A supplementary Agreement between the Government and all three companies of the I.P.C. group in 'Iraq was concluded in May I939. Under its terms an interest-free loan equivalent to £3 million sterling was to be made by the Companies, payable in six half-yearly instalments and later recoverable out of royalties. In return, the Government consented to certain modifications of the exis_ting Agreements, notably an alteration of the B.O.D. drilling obligation (p. 75), and a seven-year extension of the period within which that Company must produce oil on a commercial scale.
THE LEV ANT BETWEEN THE WARS
T .. 0 the rulers of Kemalist Turkey, once firmly established, no means of development of their country's resources appeared practicable save those of Etatism, the domination of industry by the State. Oil, more particularly, was present in the minds of the planners of Ankara after their experiences at Lausanne, their claims to Mosul and its alleged oilfields, and the importunities of Admiral Chester; and American experts on behalf of the Government toured the Mardin area, some coastal regions, and the Anatolian plateau in 1925. Their report was guarded and on balance unfavourable; but it was far from denying the possibility of oil deposits.
Legislation in the same year provided that grantees of mineral rights must be of Turkish nationality, or Turkish-controlled companies; and early in 1926 the existing regulations, which governed mining, were replaced by a law so conceived as to render almost impossible the attraction of foreign capital to the task of Turkish oil development. The latter became, instead, a specifically governmental undertaking capable of delegation to private enterprise only with niggardly reluctance. Plots for allotment to members of the public for exploration were rigidly limited in size and shape and carried inordinate drilling obligations; and the area ultimately grantable to a concessionaire under a thirty-year mining lease could not exceed thirty-five hectares per producing well. Royalty was fixed at 20 per cent. of production, payable in cash or kind.
The publication of this law, nevertheless, did not immediately suspend the traffic in concessions and licences held or claimed by oil-minded Turks and resident Europeans. In 1927 the Turkish Petroleum Company was thus offered 'exclusive rights' in Erzerum district; in 1928 a Turkish syndicate sought to dispose of a bundle of ancient permis de recherches to French interests. Meanwhile the T.P.C. itself made what movements it could towards persuading the Turkish Government to modify, in its own interest, the present discouraging regulations; but it could make no progress. In 1933
THE LEVANT BETWEEN THE WARS 85
the British Government was informed, and informed the LP.C. (as the Company had now become), that the old licences of Fuad Pasha for the Van area were reputed to be still valid; the Company, however, showed no interest. Even so, the advice given to it by many 'old hands'-to keep out of a field where foreigners were unwelcome and where ultimate profits were clearly destined only for the. Turkish State-was not yet wholeheartedly accepted; the Company still hankered for the chance, at least, to study Turkish potentialities. Foreign interest could, however, scarcely survive the further stages of Etatism reached in 1933-4, when, under the Five Year Plan, the Eti Bank was founded to finance the work of the Mining Research Institute-the M.T.A.l-and the latter thereafter assumed complete charge of all oil-finding activity. The visits of 'Iraq Petroleum geologists to the Boyabat and other seepages in 1934 revealed an atmosphere of increasing restriction; the relations between the Company and certain Turkish publicists and parliamentarians in 1934 and 1935 could lead to no more than unrealized aspirations to modify the law or to secure consent from the Grand National Assembly to a 'blanket concession' for some promising area. Little more, in fact, was heard of private enterprise in Turkish oil development for the next eighteen years.
The M.T.A., meanwhile, aided from time to time by American experts and drilling-contractors, settled down to a campaign of energetic search, and between 1934 and I940 drilled a score or more of wells on various structures, usually in the vicinity of seepages. Initial hopes were highest in the neighbourhood of Murefte on the Bosphoros, where eight wells were drilled: those of Van and of Sinop in the east and north -east: detached locations in central Turkey: the plain of Adana: the Alexandretta (Iskenderun) area: and the district athwart the Upper Tigris from Mardin to Siirt, At all these one or more wells were drilled, American equipment being used and a number of Texan and Canadian drillers employed. Among efforts which raised the highest hopes were those in 1935 at Basbirin, where a depth of 4,500 feet was reached, but only salt water discovered: and at Hermis and Kerbent, at both of which, at depths of 3,000-3,500 feet, insignificant traces of oil were encountered. These wells were all abandoned and nowhere else was any deposit approaching 'commercial
1 Maden Tetkik ve Arama Enstitusu.
OIL IN THE MIDDLE EAST
quantities' located. Simultaneously, geophysical parties covered wide areas; and with the increase of geological data and after many local disappointments, the search appeared by 1937 to be narrowing to the Adana plain and to that part of the great Persian Gulf geosyncline which covers the provinces of Diyarbakr, Mardin, and Siirt, In 1939 hopes were concentrated on the Raman Dagh anticline near Diyarbakr and drilling there was put in hand.
Up to I935 the bulk of Turkish imports of petroleum products were of Russian or Rumanian origin. Thereafter, arrivals from Rumania diminished and Russia was decreasingly willing to spare her petroleum for export. The market was by I939 predominantly in the hands of the Shell Company and of Socony-Vacuum, and the supplies were mainly American in origin. At this time, however, in spite of efforts at industrialization, Turkish needs barely reached 200,000 tfy of products.
II. THE LEVANT STATES: PIPELINES AND TERMINALS Syria and the Lebanon, Palestine and Transjordan passed during these years, 1923-39, through closely similar experiences in their relationship with the oil industry. All four acquired importance as territories across which oil passed in transit from 'Iraq to the sea; two of them, Palestine and Lebanon, were furnished also with important terminal and oil-loading installations; and in them all a serious search for native oil supplies was set in motion for the first time with modern methods and upon an important scale.
The decision by the Iraq Petroleum Company in 1931 to construct a pipeline from the Kirkuk oilfield to the Mediterranean involved the laying of trunk lines through 267 miles of Syrian territory, 17 of Lebanese, 205 of Transjordanian, and 40 of Palestinian. In Syria three main pumping-stations were to be erected (Tz, T3, and T4), in Transjordan two (H4 and H5); the terminal installations at Haifa and Tripoli were to be on an imposing scale.
Agreements with the High Commissioner of Palestine, the Amir of Transjordan, and the ministers and Presidents of the Lebanese and Syrian Republics were obtained for the Company in January and March 1931 by its negotiator, J. Skliros: agreements which, differing essentially as they did from concessions for oil exploitation, were closely similar to each other. While favourable to the
THE LEV ANT BETWEEN THE WARS 87
Company, the terms which they embodied were in. no way unfavourable to the States. The agreements were for seventy years. They gave almost complete customs and taxation exemption and permitted the Company to use, on payment, all local services and resources, to construct all necessary works, and to use all public communications. The Government was to assist the Company in obtaining the necessary lands and wayleaves. No charge was made for the right of transit as such, partly in deference to the international Convention to that effect 1 and partly in anticipation of general benefits to the transit countries' economy.
The headquarters of the enterprise was established at Haifa in the summer of I931. Offices were opened in Beirut, Tripoli, Homs, and 'Amman and the detailed survey was completed by the autumn. Steps were taken in each country towards land acquisition, contact and co-operation with all local authorities, the use of railways, and the recruitment of staff and labour in a wide range of categories. With the first arrival of materials from Europe and the United States to Haifa, Beirut, and Tripoli early in I932, the physical work of construction began in the spring of that year. The course of the line and its construction through Syria and Transjordan had all the features already described as encountered in 'Iraq (p. 77), and others were involved in the lines' transit across intricate cultivated lands in Syria, Lebanon, and Palestine, the forbidding lava-country of Transjordan, where a formidable feat of road construction was necessary, and the deep Jordan Valley depression, where a relief station was constructed. The five main-line stations were duly established, equipped, and perfected; the railhead depots of Horns and Mafraq were, and remained, scenes of ceaseless activity as bases and forwarding stations. The passage of the line through Lebanon and Palestine raised more complicated questions of land acquisition, which were successfully resolved.
Oil was pumped into terminal tankage at Tripoli from T 4 station, a distance of I I I miles, and to that of Haifa from H 5 station 138 miles away. At Haifa the tank-farm of ten 93,000- barrel tanks was situated on sand-dunes on the Bay of Acre, with five more tanks (added later) close to Haifa Harbour and its oil dock. At Tripoli fifteen 93,00o-barrel tanks were erected four
1 Barcelona Transit Convention, 192I.
OIL IN THE MIDDLE EAST
miles north of the town on the lower slopes of the hills overlooking orange-gardens and the sea. At both the necessary industrial buildings, offices, stores, communication centres, and repair shops were installed, fire-fighting arrangements organized, marine signal stations erected, and submarine lines laid on the sea-bed to loading berths a mile or more from shore. Both terminals were served by railway sidings, both could draw their electric power, at least in part, from public supplies. At the Tripoli loading berths little protection from the weather, except from the west, was available; at Haifa some protection was given to the sea-berths by the Carmel promontory and the port of Haifa was improved in other respects by the construction by the Palestine Government between 1930 and 1933 of a modern harbour, to which an oil dock for the Company's use was added later and came into use in 1935.
The landing arrangements, by sea-line at Tripoli but by both sea-line and oil dock at Haifa, were the subject of agreements made in 1934 with the Lebanese and Palestine Governments. These provided for the detailed procedure of loading, the relation of the Company's needs and installations to those of the State and public, and the consolidated payment (2d. per ton for sea-line and 5d. for oil dock loading) to be made for services provided. At each terminal the Company acquired not only the lands immediately required but further and considerable adjacent areas for possible future refineries.
The work of construction called in each State for the rapid organization of a staff and recruitment of workers drawn from the nationals of the country, with a minimum of British, French, 01' American supervision. All efforts were made to use the skill of local doctors, engineers, technicians, and artisans to the greatest possible extent; semi-skilled and unskilled labour was, as a matter of course, found locally. In the peak period of construction the numbers employed were, by any previous standards in these territories, formidable; in the summer of 1933, 1,400 Palestinians, 4,250 Transjordanians, 2,600 Lebanese and Syrians were in employment. Though by the end of 1932, and thereafter, these numbers were substantially reduced, yet the direct contribution made to local society by such employment and by the scale of the purchases made and contracts given in each country was both economically and educationally considerable. The end of the construction period itself was no clearcut line; further work, the
THE LEVANT BETWEEN THE WARS 89
erection of additional buildings and tankage, was in constant progress between 1935 and 1939 and provided further economic benefit to the workers and the public. Relations of the Company with its employees and with local authorities were almost uniformly excellent. In Palestine the necessary but uneasy. balance was held between Arab and Jewish claims to employment and a similar balance was .. maintained in every territory between the Muslim majority and the Christian minorities. Every care was taken to provide working conditions well in advance of prevailing local usage, medical and commissariat services were fully developed, living quarters built where necessary, facilities for sport and social life provided.
The pipeline came into use in the later weeks of 1934, in advance of the formal opening ceremonies in each country. Its operation was uninterrupted and efficient. The throughput, shared equally between the northern and southern lines, approached 4 million tons in 1935 and slightly exceeded that figure annually thereafter.
The crude oil 1 delivered at seaboard became, once loaded, the property of the constituent groups. The share of the Socony and the New Jersey Companies went to their respective refineries in France and England: that of the Compagnie Francaise to France: of Anglo-Iranian to its refineries in Great Britain and France: of Shell to its refineries in France and Belgium.
The outbreak of war, which frustrated the Company's intention, formed in 1938-9, to increase the pipeline system, came, fortunately, too late to stop another major development of the industry in Palestine, the construction of a refinery. Already in 1933 the Anglo-Iranian had obtained transit rights across Transjordan and Palestine: and agreements reached in 1938 between that Company and the I.P.C., and between both and the High Commissioner for Palestine, permitted Anglo-Iranian to enjoy the facilities and privileges of the I.P.C. for handling and loading products. To carry out the refinery project, which fell within the Consolidated area (p. 65), Consolidated Refineries Limited had been registered as early as 1935, with equal Shell and Anglo-Iranian participation. It proceeded in 1938 to construction on a site adjoining the Kishon River in the Bay of Acre. Work had proceeded so far by September 1939 that the first distillation unit could be completed in December
1 'Sour' crude until completion of the stabilization plant at Kirkuk in I937. and thereafter 'stabilized'.
90 OIL IN THE MIDDLE EAST
by the Company's own staff, after the departure of the American contractors in December; it was brought into operation in that month with an initial capacity of I million t/y-animmense war asset as the event proved. The original design, which included two 30o,ooo-gallon reforming units, could not for the time being be carried out. Even so, the establishment on this coast of a modern refinery marked a significant step in the development of the oil industry in the Middle East; and the strategic, no less than the financial importance of the new oil route across the desert, was obvious. A new weapon, moreover, for bargaining or a new hostage had been given to whatever political forces in the transit States might care, some day, to use it.
Meanwhile, the requirements of the Levant countries in oil products in these years were humble enough. The demand in Palestine, which in 19z8 was less than 50,000 tons of all products combined, did not reach zoo.ooo tons in 1938 and was still less in each of the other three territories. These needs were met by the established distributing companies: Consolidated Petroleum (in the guise of the Shell companies of Syria and of Palestine), SoconyVacuum, and a half-dozen minor local distributors with or without affiliations with American, Rumanian, or French parent-companies. The products themselves came from Rumania, Persia, the Netherlands East Indies, and Egypt.
III. THE LEVANT STATES: THE SEARCH FOR OIL
In the Levant States, throughout the nineteen-twenties, small progress was made in the search for oil otherwise than by the accumulation of geological information in government files, until this situation of comparative neglect was changed by three succeeding events. The first of these was the influx of oil-minded Europeans and Americans into the Levant countries in connexion with the 'Iraq-Mediterranean pipelines, The second was the discovery of oil in rock of Cretaceous age at Bahrain Island: an event which both enlarged the geologically hopeful field of search and warned the pioneer companies of the Middle East that newcomers were in the field. Thirdly, and partly under pressures resulting from these influences, the local governments proceeded to the preparation of modern oil codes.
As a first step, an Iraq Petroleum Company geological office was opened in Jerusalem in 1932; and thereafter expert examina-
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